Enabling 21st century technologies IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Five year summary
2015
£’000
2014
£’000
2013
£’000
2012
£’000
2011
£’000
Revenue
114,024
112,011
126,774
87,961
75,318
EBITDA (see below)
29,001
27,009
24,920
16,437
13,955
Operating profit
- Adjusted*
- Reported
Profit after tax
- Adjusted*
- Reported
Net cash flow from operations
- Before exceptional cash flows
- Reported
Free cash flow**
- Before exceptional cash flows
- Reported
Net debt
18,977
21,166
18,086
20,149
22,575
20,971
12,114
10,510
17,618
7,167
16,701
1,996
19,614
14,861
11,446
6,693
14,556
7,346
14,202
6,126
16,173
12,762
5,389
1,978
9,202
7,014
8,401
6,631
4,679
4,109
(1,569)
(2,139)
8,657
7,373
9,727
8,443
10,823
10,823
(8,585)
(8,585)
(23,223)
(31,251)
(34,351)
(15,483)
(3,921)
Equity shareholders’ funds
144,601
119,056
110,498
90,189
72,750
Basic EPS – adjusted*
Basic EPS – unadjusted
Diluted EPS – adjusted*
Diluted EPS – unadjusted
2.68p
3.00p
2.60p
2.90p
2.51p
0.25p
2.42p
0.24p
2.09p
0.93p
2.00p
0.89p
* The adjusted performance measures are reconciled in note 4 on page 69.
** Free cash flow is defined as net cash flow before acquisitions, financing and net interest paid.
Profit after tax
Tax
Interest
Share based payments
Profit & loss on disposal
Exceptional items
Depreciation
Amortisation of intangible assets
2015
£‘000
20,149
(773)
1,790
2,001
(5,187)
(211)
6,192
5,040
2014
£‘000
1,996
3,247
1,924
1,458
15
7,877
6,590
3,902
2013
£‘000
6,126
(934)
2,154
1,415
-
5,065
8,503
2,591
1.47p
1.16p
1.40p
1.10p
2012
£’000
6,631
(503)
886
1,360
-
570
5,998
1,495
1.86p
1.62p
1.74p
1.51p
2011
£’000
8,443
(1,551)
481
1,284
-
-
4,175
1,123
EBITDA
29,001
27,009
24,920
16,437
13,955
Page !1
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
to be the global
number one
provider of advanced
semiconductor
materials
To use our
technology leadership
and scale to deliver the
performance, cost points and
security of supply required for
mass market adoption of
compound semiconductor
materials
Number one
provider of compound
semiconductor wafer
products by market share and
scale - clear technology leader
with an unparalleled breadth of
technology. Leading the
advancement of new
materials
Page !2
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Inside this report
Five-year financial summary
...................................................................................................
1
Our vision
..............................................................................................................................
2
Message from the Chairman
..................................................................................................
4
CEO’s review
.........................................................................................................................
6
A brief history of compound semiconductors
.......................................................................
10
Our core technology - making wafers
...................................................................................
12
Ubiquitously enabling new and emerging technologies
.........................................................
16
Innovation through collaboration
..........................................................................................
17
Strategic report
....................................................................................................................
18
Our competitive advantage
............................................................................................
18
Our business model
.......................................................................................................
19
Our markets
...................................................................................................................
20
Our strategy
...................................................................................................................
25
Operational highlights
.....................................................................................................
26
Key development milestones
..........................................................................................
27
Financial review
..............................................................................................................
28
KPIs and financial highlights
...........................................................................................
29
Current trading and outlook
............................................................................................
30
Innovation, research & development
...............................................................................
30
Our commitment (CSR)
..................................................................................................
31
Principal risks and uncertainties
......................................................................................
33
Directors’ biographies
..........................................................................................................
38
Directors’ report
...................................................................................................................
40
Remuneration report
............................................................................................................
42
Corporate governance report
...............................................................................................
47
Independent auditors’ report
................................................................................................
51
Financial statements
............................................................................................................
53
Consolidated income statement
.....................................................................................
53
Consolidated balance sheet
...........................................................................................
54
Consolidated statement of changes in equity
.................................................................
55
Consolidated cash flow statement
..................................................................................
56
Parent company balance sheet
......................................................................................
57
Parent company statement of changes in equity
............................................................
58
Parent company cash flow statement
.............................................................................
59
Notes to the financial statements
.........................................................................................
60
Officers and professional advisers
........................................................................................
96
Page !3
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Message from the Chairman
It is my great pleasure to introduce our 2015 Annual
Report.
Enhancing core market leadership in Wireless and
expanding diversification activity
I am immensely proud of the excellent reputation IQE has
established as a world leading innovator and supplier of
During the past three years, IQE has successfully formed
industry specific business units dedicated to each of our
advanced semiconductor products. Our standing as the
global leader within our industry has led to consistent
and robust business and financial performance through
some tough economic times.
Our proven track-record in providing the key enabling
technologies for today’s wireless products, coupled with
our innovative product portfolio spanning a wide range of
new and emerging applications, should give investors the
confidence that IQE is uniquely positioned to provide
excellent long-term shareholder returns.
It is through our commitment to innovation in advanced
semiconductor technologies that IQE is helping to shape
the future that will transform the way we live, work and
play.
IQE is the world’s leading manufacturer and supplier
of Compound Semiconductor wafers.
Most people don’t realise when they’re accessing the
internet on their smartphone or tablet the
communications networks and mobile technology they
are using would not be possible without compound
semiconductors manufactured and supplied by IQE.
The world of semiconductor technology is one of the
most dynamic, advanced and fast-moving industries in
the world. Our technologies feature in many of the
world’s most exciting products, from the latest
smartphones, to the future connected-world through the
Internet of Things (IoT) and from advanced healthcare
technologies through to electrically powered, connected
and driverless vehicles.
primary markets: wireless, photonics, Infrared, CPV,
power and CMOS++ (advanced electronics) and we are
well poised to strengthen our position to significantly
grow our business in these markets over the coming
years.
The wireless market, which accounts for approximately
70% of our sales, remains our key market in which IQE’s
global market share is more than 50%. Although subject
to short term inventory cycles, the wireless
communications market continues to represent an
exciting long term growth prospect by the proliferation of
wireless communication, and the need for continual
improvement in chip performance.
The importance of maintaining and expanding a
comprehensive Intellectual Property (IP) portfolio cannot
be over stated, even in established markets such as our
wireless business, where continuous improvements in
technological performance are the key elements in
achieving competitive advantage for IQE, our customers
and handset manufacturers alike.
Our photonics business, which enables a diverse range
of end applications, from data communications and
advanced optical-fibres, to sensors in consumer and
industrial applications, continues to demonstrate strong
performance and represents our fastest growing
business segment.
Page !4
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
This business unit is being propelled by our technology
leadership in advance lasers (VCSELs), and has already
begun the transition from development and pilot
revenues into high volume manufacturing following a
number of key contract wins.
Hot on the heels of the Catapult announcement, in
March 2016, the UK government signed a Cardiff Capital
Region (CCR) City Deal which includes significant
investment in technology and innovation aimed at
bringing long term prosperity to South Wales.
Guided by our vision that compound semiconductor
technology is at the very heart of the next wave of the
At the same time as announcing the Cardiff City Deal, the
UK Chancellor also agreed to open negotiations on a
electronics revolution, we continue to push the limits of
materials technology, constantly improving the quality of
existing products whilst developing new and enhanced
capabilities.
Collaboration and Innovation is IQE’s lifeblood.
City Deal for the Swansea Bay Region.
IQE has actively supported both Cardiff and Swansea
City Deal bids, both of which open excellent
opportunities for investment in new and emerging
technologies that utilise compound semiconductors.
2015 has been a pivotal year for IQE with formation of
Unparalleled industry reputation.
the Compound Semiconductor Centre (CSC), a joint
venture between IQE and Cardiff University, one of
Britain’s leading research universities. The CSC
represents a key milestone in bringing industry and
academia together towards a shared vision to create a
major new compound semiconductor cluster for next-
generation technologies.
Today we are building upon our expertise and our
technology to create a unique global capability for new
and emerging 21st century technologies, focusing on
important materials such as gallium nitride (GaN) for next
generation wireless, power and photonics applications.
Our vision of creating a technology cluster was endorsed
at the start of 2016 when UK Chancellor, George
Osborne formally announced the establishment of a
Compound Semiconductor Applications Catapult, a hub
of excellence for applied research. The Catapult centre
will be located in South Wales, forming part of a UK
network of Catapults in disciplines ranging from high-
value manufacturing to space applications. IQE, along
with Cardiff University, will form a key resource to the new
Catapult.
I opened my introduction with a comment about IQE’s
enviable reputation.
Our position in the supply chain does not provide us with
the status of being a household name. However, it never
ceases to amaze me at the high-esteem held for IQE
within our industry and across our supply chains which
include a number of major multinational blue-chip
companies.
Whilst we are unable to quote our customers, the
feedback from major international events is testament to
the professionalism, expertise and integrity of our teams.
I would like to thank all the management and staff of IQE
for the success of 2015. Their commitment and
dedication continue to be the foundation of our
achievements.
Finally, and as always, I would also like to express my
sincere thanks to you, my fellow shareholders, for your
continued belief in and support of IQE.
Page !5
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
CEO’s review
The focus of everyone at IQE, is on growing the business
strategy: we further sharpened our strategic
through our technical leadership. We have a solid and
growing customer base, we are diversifying our product
portfolio and our service offering and we are enhancing
our technology capabilities through acquiring and
developing new and innovative intellectual property (IP)
and in so doing, we will create shareholder value for the
long-term.
IQE’s core business is the manufacture and supply of
compound semiconductor wafer products. Our wafers
are similar to silicon wafers that are used to make the
silicon chips that have transformed our world over the
last five decades. Compound semiconductors offer far
superior performance operating at speeds more than
100 times faster than silicon, and with a wide range of
photonics and power efficient properties that make
compound semiconductors the material of choice for
today’s ever increasing demands on technology.
Our products help to create a smarter, more advanced
and more connected world that, every day, enriches
people’s lives in many ways. We have a passion and a
drive for innovation that constantly challenges
conventional and incumbent technologies to achieve the
higher performance levels demanded across multiple
markets such as communications, healthcare,
aerospace, automotive, safety & security, the Internet of
Things and efficient energy generation and usage.
Our strategy is clear: to use our technology leadership
and scale to deliver the performance, cost points and
security of supply required for mass market adoption of
compound semiconductor materials in a demanding,
highly technical, leading edge industry sector.
2015 saw continued momentum in our business with the
reinforcement of the three primary strands of our
diversification in our markets by improving operational
performance, we exploited our global presence and
world leading technology platforms by entering into two
joint venture arrangements, in Singapore and the UK,
and we maintained our technology leadership by
developing a broad IP portfolio through both internal
development and strategic transactions.
Diversifying our end markets
Wireless products continue to represent a key part of
IQE's core business but revenue has declined ahead of
the next wave of innovation in smartphone and related
communications hardware.
In the short term, we expect the market for wireless
materials to grow at a rate of approximately 5%. IQE’s
business is well underpinned with a major contract win
(c.$55m) announced in January 2016, and recent
market share gains following new product qualifications.
As in 2014, we delivered increasing underlying
profitability and earnings, as well as strengthening our
balance sheet as a result of lower deferred consideration
and net debt. We should not lose sight of the fact that
the wireless sector remains a major part of the Group’s
future business, and will only be enhanced with the
adoption of numerous photonics devices in next
generation handsets.
We anticipate significant upside potential to this growth in
the medium term due to: innovation in smartphone
hardware, including the adoptions of advanced sensors;
the adoption of GaN on Silicon technology for base
stations; the transition to 5G communications, which will
require more advanced materials; and the combination of
silicon with compound semiconductors using cREO for
other wireless communication chips.
Page !6
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Power and energy
IQE has built an enviable position with a number of key
players in the rapidly growing gallium nitride (GaN)
markets. In addition to establishing relationships with
leading players in the power RF GaN markets for base-
stations, IQE has also been working closely with
industrial partners, academics and government agencies
on developing a product pipeline for GaN power device
technologies for a range of markets from alternative
energy sources to commercial and aerospace
applications.
Notably, such programmes include active participation in
initiatives such as the US government funded
programme to develop GaN on silicon power switching
technology for grid applications.
IQE’s materials development is at an advanced stage,
with new product launches expected over the coming
months.
IQE has made solid progress in its other markets, in
line with our strategic plan.
The Group’s revenues continue to diversify as its
photonics sales grow rapidly. The growth in the
photonics business follows on from strong long-term
engagement by IQE with its customer base in the
development of new and innovative products. The
increasing number and quality of customer product
development programmes is a positive lead indicator
which is providing a high level of confidence over the
growth outlook for photonics. A mix of applications
contributed to this growth, particularly data centre
connectivity, fibre-optic communications and a broad
range of sensor products.
Other Group business units also performed well,
achieving a number of key technical and commercial
milestones which is moving the Group ever closer toward
new product launches in high volume, high growth,
power control and energy markets.
Infrared
IQE is already the global market leader in the
manufacture and supply of indium antimonide and
gallium antimonide engineered materials that enable high
resolution Infrared systems, with an estimated market
share of around 80%.
Whilst key markets are currently limited to defence
programmes, there are likely to be major future
opportunities in commercial markets in areas such as
gesture recognition, 3D imaging and sensing applications
for autonomous and driverless vehicles.
Page !7
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Exploiting our global presence and world leading
technology
IQE’s management and expert teams firmly believe that
Compound Semiconductor technology will play a
significant role in the future of 21st century technologies.
To capitalise on the opportunities ahead, the Group
entered into two joint venture arrangements during 2015:
one in Singapore and the other in the United Kingdom.
The joint ventures will help provide a focal point for
effective collaboration between industry, academia and
government agencies for the development and
commercialisation of next generation technologies.
The Compound Semiconductor Development Centre
(CSDC)
Based in Singapore, the
CSDC is jointly owned by
IQE, WIN Semiconductor
and Singapore’s National
Technology University
(NTU), bringing together
local management teams with
key academics. Its purpose is to accelerate the
development of compound semiconductor technologies
in Asia as well as to provide an effective incubator for
bringing new innovations to market. It represents a highly
innovative approach to making the most of the skills and
talent that exist in Singapore.
As part of its contribution to this joint venture, IQE
provided facilities, equipment and IP to the CSDC.
The Compound Semiconductor Centre (CSC)
In the UK, The CSC was
established as a Joint Venture
between IQE and Cardiff
University. This is a key step
in creating the World's first
Compound Semiconductor
Cluster.
IQE’s vision is to build a cluster into one of global
significance and scale, leading to widespread economic
benefits for the region, and providing a broad range of
compound semiconductor capabilities to support the
rapid growth in 21st century technologies, both in
Europe and across the rest of the World.
The CSC will work closely alongside other industry,
academic and government initiatives such as Cardiff
University’s Institute for Compound Semiconductors, also
announced during 2015, as well as the UK government’s
investment in a dedicated Compound Semiconductor
Applications Catapult announced by the UK Chancellor,
George Osborne, at the start of 2016. Both of these
investments provide a strong endorsement for the future
growth of our industry sector and the strength already
established in IQE’s supply chain.
These JVs are commercial entities seeking to develop
and commercialise new products, to which IQE has first
manufacturing rights. IQE’s equity share in each JV is
~50%, and it jointly controls these JVs with its JV
partners.
The license revenue earned and recognised by IQE
reflects only its share (~50%) of the gross income (ie is
stated after the elimination of unrealised gains). Given
that the JVs are related parties, the licence fees were
determined with independent validation.
Page !8
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
These license fees are primarily upfront fees, although
there is a recurring element. This is consistent with the
Group’s strategy to monetise its IP through production
and licensing where appropriate. The Group is also
exploring further opportunities to license IP to third
parties. By its nature this income is inherently lumpy. In
Q1 of 2016 the group has earned further upfront license
income with JVs of approximately £2m.
Both the CSDC and the CSC clearly highlight IQE’s
dominant position in technology leadership, and form
strong relationships within which IQE’s technologies will
be embedded.
Also in 2015, IQE was announced as a key partner in a
new consortium to establish the United States’ first
Integrated Photonics Institute for Manufacturing
Innovation (IP-IMI), created as part of President Obama's
National Network for Manufacturing Innovation (NNMI).
The consortium, known as the American Institute for
Manufacturing Integrated Photonics (AIM Photonics),
comprises 55 leading industrial partners and is led by the
Research Foundation of the State University of New York
(SUNY). IQE’s role in the consortium is to provide
advanced epitaxy services to the Institute partners.
Inclusion as a key partner in this new US Manufacturing
Institute is testament to IQE’s reputation as a global
world leader in compound semiconductor materials, a
key enabling technology (KET) for photonics.
Increasing our IP portfolio
The technology business continues to strengthen with a
notable licensing agreement with Silex Systems Limited’s
subsidiary, Translucent Inc. to acquire Translucent Inc.’s
Unique cREO™ Technology. The cREO™ technology
offers a unique approach to the manufacture of a wide
range of innovative Compound Semiconductor on Silicon
products, including gallium nitride (GaN) on silicon (Si)
for the burgeoning Power switching and RF technologies
markets. This is a great opportunity for IQE to take the
unique cREO™ technology to market and thereby create
a significant new platform to drive our business into
several new large volume areas.
The two joint venture initiatives in Singapore and Cardiff
are also creating next generation IP which will support
continued economic growth and prosperity and IQE has
licensed additional IP during 2015.
The Group is continuing to develop a broad IP portfolio
through both internal development, and selective
transactions.
A bright future
It is widely acknowledged that compound semiconductor
technologies will play a pivotal role in meeting global
societal challenges of the 21st century, and are expected
to be the next engine of growth, transforming the way we
live and work over the coming decades in the same way
that silicon has changed the world over the last five
decades. The Internet of Things (IoT), big data,
sustainable energy, electric and driverless vehicles,
personalised healthcare and advanced communications,
educational and entertainment technologies will all be
enabled by compound semiconductors.
IQE has established a leading global technical and
commercial leadership position, and this is just the
beginning of the compound semiconductors momentum.
Dr A W Nelson
CEO and President
22 March 2016
Page !9
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
A brief history of compound semiconductors
The elements
Everything in the universe is made of 118 known
elements. The periodic table, first published in 1869 by
Dmitri Mendeleev, shows the elements arranged in
groups or columns according to their properties.
During the two decades that followed, the ability to
control electrical currents using semiconductors allowed
engineers to develop a range of new electronic
technologies.
The evolution of silicon
In terms of electrical properties, the elements up to and
including those in group III are in general, known as
metals and tend to be good conductors of electricity,
Whilst germanium is a very efficient semiconductor
material, the ready availability of silicon (basically sand)
made for a compelling low-cost alternative and hence a
whilst those from group V and above are generally non-
metals and tend to be poor conductors of electricity.
new industry was born that has, for the last five-decades,
transformed our lives in so many ways.
Between the metals and non-metals, (and generally in
group IV), are elements whose electrical properties are
somewhere between conducting and non-conducting
(insulating). These elements, which include silicon and
germanium, are known as semiconductors.
Silicon has been the backbone of the electronics
revolution from the 1960s, largely by virtue of continuous
miniaturisation which has led to an exponential increase
in technological performance - a concept notably
observed by one of the founders of Intel, Gordon Moore,
and known as “Moore’s Law”.
The behaviour of semiconducting elements was
discovered during the 19th century and it later became
known through experimentation that their electrical
properties could be altered by adding very small amounts
of different impurities and that by placing together two
pieces of material with different impurities, an electrical
current could be controlled by allowing it to flow in one
direction but not the other.
The semiconductor age is born
It was in 1947 that William Shockley, John Bardeen and
Walter Brattain, working at Bell Labs, built the World’s
first transistor using the element germanium.
Page !10
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Bring on the compound semiconductors
form of general lighting (LEDs) and communications
(lasers and receivers for fibre-optics).
The photonic and power efficiency properties offered by
compound semiconductors that could not be achieved
with silicon alone, will enable technologies essential in
areas such as safety and security systems, healthcare
technologies, aerospace and automotive applications
including electrically powered and autonomous vehicles.
It is our ability to harness the advanced properties of the
full range of semiconducting materials that will drive the
digital revolution for generations to come.
Welcome to the world of advanced, compound
semiconductors.
Impressive as the impact of silicon has been on our lives,
it has a very basic and limited set of properties that
restricts its application in many new and emerging
technology areas that demand ultra-high performance
levels along with sensing and other capabilities.
By atomically engineering crystal structures that combine
elements either side of those in group IV of the periodic
table (eg groups III and V), a set of new semiconductor
materials has emerged whose enhanced properties offer
significant performance improvements over those of
silicon alone.
These compound semiconductors enable high speed
processing in excess of 100 times that of silicon, as well
as an array of other properties including the ability to emit
and sense light, all the way from the infrared, through
the visible and into the ultra-violet part of the
spectrum.
Compound semiconductors have already
complimented silicon in areas such as wireless
communications, where chips made from
material combinations such as gallium and
arsenic (gallium arsenide, or GaAs) are found in
virtually every smartphone where they enable high
speed, high efficiency wireless communications in cellular
and WiFi networks.
Other properties offered by compound semiconductor
materials include the ability to emit and sense light in the
Page !11
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Our core technology - making wafers
COMPONENT
ASSEMBLY
INTEGRATION &
PACKAGING
CHIP
FABRICATION
SUBSTRATE
EPITAXY
Epitaxy
IQE's core business is the manufacture of compound
semiconductor wafers or "epiwafers" using a process
called epitaxy.
The epitaxial growth process is a nanotechnology
whereby complex atomic structures are produced under
strictly controlled conditions. The end product is a pure,
crystaline semiconductor wafer (substrate) upon which
complex structures comprising many individual atomic
layers are grown.
These epitaxial layers uniquely define the wireless,
photonic and electronic performance of our epiwafers
which are then processed by our customers to produce
the "chips" that are found in virtually all of today's
technology devices and gadgets.
Epitaxy is the first key stage in the process of
manufacturing the critical components in a wide range of
devices from mobile handsets to solar cells and LEDs,
and it requires high specification cleanrooms,
sophisticated production tools and high levels of
intellectual property.
IQE produces atomically engineered layers of crystalline
materials containing a variety of semiconductor materials
such as gallium, arsenic, aluminium, indium and
phosphorous.
The layers are grown onto a crystal substrate or wafer
and the finished product containing the wafer and its
atomically modified surface is known as an epiwafer.
It is the number of layers, their atomic composition and
the order in which they are grown that determines the
precise physical, electronic and optical properties of the
material.
An epiwafer can include hundreds of individual layers,
each of which may be as thin as two or three atoms.
IQE's intellectual property (IP) or know-how is
the science and technology behind the materials and the
way in which the atomic structures can be manufactured
to yield the wide range of wireless, photonic and
electronic properties that are essential in today's
electronically enabled age.
Page !12
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Page !13
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Page !14
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Epitaxy
The stage is set
Epitaxy > ˈɛpɪtaksi
noun
In crystallography, the natural or
artificial growth of crystals on a
crystalline substrate that determines
their orientation.
Epitaxy is a process for depositing layers in a highly
controlled way to form precisely defined crystalline
structures that have specific atomic arrangements.
The layers deposited using an epitaxial deposition
process are designed to produce highly specific
electrical, optical and mechanical properties.
Layers of atoms are arranged on a crystalline substrate
of gallium arsenide (GaAs) or indium phosphide (InP).
The composition of the atomic layers is varied to include
different elements such as gallium, indium, aluminium,
nitrogen, arsenic and phosphorous. Carefully controlled
“impurity” atoms such as sulphur and zinc are also
added to control the electrical properties of the material.
Ga
Al
As
Change is a constant in our world. The inexorable drive
for electronic devices to continue to achieve higher levels
of functionality, speed, performance and efficiency will
unquestionably necessitate the increasing use of more
sophisticated semiconductor materials. These
advanced semiconductors are enabling a range of new
mass market applications such as gesture recognition
and short range optical communication, and at the
same time disrupting some existing large markets such
as solar energy and power switching. We expect that
this rate of change will continue to accelerate.
We have established a global manufacturing platform
and a breadth of IP relating to the design and
manufacture of advanced materials that is second to
none. We have been unwavering in our vision and have
developed a robust strategy which gives us confidence
over the growth prospects of the business and our
ability to create shareholder value.
As
Ga
Al
Al
As
Ga
Al
Ga
Al
As
Ga
Ga
As
Al
Ga
As
Al
Ga
As
Al
Ga
As
Al
Ga
As
As
Ga
As
Ga
As
Ga
As
Ga
As
Ga
As
Ga
As
Ga
Ga
As
Ga
As
Ga
As
Ga
As
Ga
As
Ga
As
Ga
As
substrate / wafer
Page !15
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Ubiquitously enabling new and emerging technologies
The unsung heroes
Semiconductors in the form of both silicon and
compound semiconductors, form the heart of many of
today’s technologies. Without semiconductors, many
devices and applications that we rely on simply would
not exist, yet these atomically engineered materials go
largely unnoticed amongst the end user brands with
which we are so familiar.
Semiconductors are a key enabling technology that feed
into multiple supply chains feeding a wide range of
market sectors including: aerospace, healthcare
technologies, aerospace, safety & security, big data and
the Internet of Things (IoT), energy efficiency (generation
and consumption), robotics and automotive products.
AUTOMOTIVE
COMMUNICATIONS
ROBOTICS
HEALTHCARE
ENERGY
EFFICIENCY
AEROSPACE
INTERNET
of THINGS
SAFETY &
SECURITY
Page !16
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Innovation through collaboration
IQE’s vision is to be at the epicentre of the world’s first
compound semiconductor cluster, based in the UK.
There has been significant progress in making this a
reality over the past 12 months, and momentum
continues to build :
Cardiff University is investing c.£75m in the formation
of the Institute of Compound Semiconductors as part
of its £300m innovation campus;
IQE and Cardiff University invested £24m in the
formation of the Compound Semiconductor Centre
In January 2016 George Osborne announced £50m
funding for a Compound Semiconductor Catapult in
Wales, which will leverage a further £100m funding
from Innovate UK and Industry
In March 2016, the Cardiff City Region Deal was
announced which identifies the emerging CS cluster in
Cardiff as one of its 5 headline goals.
This level of investment is recognition of the increasing
significance of compound semiconductor technology in
the electronics industry, and the UK’s ambitions to build
on its existing academic and industrial strengths to
develop a world class end-to-end supply chain for
compound semiconductor technologies in the UK.
Building a high-tech cluster
Intellectual property relating to advanced materials is
playing an increasing role in the evolution of the
semiconductor industry. It is widely accepted that
advanced materials are needed to overcome the
challenges and realise the opportunities facing the
electronics industry. This is evident from recent M&A
activity in the CS space, including the formation of a JV
by Qualcomm and TDK (January 2016), the acquisitions
by II-VI Inc of Epiworks (January 2016) and Anadigics
(March 2016), and the pending acquisition by Sanan of
GCS. The prices being paid in these deals is running into
revenue multiples of 3x to 4x, reflecting that ‘the heat is
rising’.
IQE has been at the forefront of advanced
semiconductor technology for over a quarter of a
century. It has built a reputation within the CS industry
for the breadth and depth of its materials technologies
and capabilities. This is now becoming increasingly
recognised outside the CS industry, where IQE is
becoming recognised as the ‘go to’ advanced materials
innovator and provider. Indeed, IQE is now engaged
directly with a number of Tier 1 OEMs, bypassing the
normal “materials-chip-OEM” model.
There are many examples in history that show
collaboration is a powerful tool in accelerating innovation.
The benefits are even greater when whole ecosystems
“cluster” in the same location, breaking down the barriers
created by geography and time zones. Indeed,
Silicon Valley in California is a prime example
of how the benefit of clustering can propel
an industry to a global platform.
It is the benefits of collaboration and
clustering that underpin IQE’s strategic
rationale for the joint venture
partnerships it announced during
2015, and its highly successful Open
Innovation programme (openiqe.com)
The silicon supply chain is no stranger
to the benefits of clustering. Indeed, there
are 4 clusters within Europe which are
centred around the development and
commercialisation of Silicon technology.
These are strongholds of innovation and value
creation, with over 800 companies and 150,000
employees.
Page !17
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: our competitive advantage
Global footprint
IQE’s operations span the US, Asia and Europe which
reflects the geographical diversity of our customer base.
This allows IQE to be positioned close to its customers
and maintain strong, long-term relationships.
Breadth of technology
As a pioneer 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.
Intellectual property
IQE has and continues to develop a world leading
intellectual property (IP) portfolio through a combination
of innovative development programmes as well as by
acquisition.
Our IP is becoming increasingly attractive to customers
wishing to access IQE’s vast technical experience and
expertise to exploit new opportunities in new and
emerging markets.
Our IP continues to add significant value to our product
and service offering to both existing customers and the
large number of new entrants to global technology
markets.
Cost leadership
In the electronics industry, cost leadership is achieved
through advanced technology and scale. IQE has
developed leadership in both.
Security of supply
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.
IQE locations
USA
Bethlehem, PA
Taunton, MA
Greensboro, NC
Somerset, NJ
Spokane, WA
EUROPE
Cardiff 1, UK
Cardiff 2, UK
Milton Keynes, UK
Bath, UK
Asia
Hsinchu, Taiwan
Singapore
Page !18
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: our business model
Outsourcing pioneer
Pioneering specialisation within the compound
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 20th 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.
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.
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 exceeds
fixed costs.
The last decade has demonstrated an unprecedented
number of key industry suppliers selecting outsourcing
as a key business advantage.
Page !19
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: our markets
Organisation
CMOS++
The Group has established six Business Units along
The CMOS++ market combines the advanced properties
market lines, to address its primary and emerging
markets:
of compound semiconductors with the low cost of
silicon.
We segment the CMOS++ market into:
Power control
Advanced materials
The key advantages of compound semiconductors are:
Compound semiconductors are much more
efficient at emitting and processing high-speed
wireless signals
Compound semiconductors are much more
efficient at emitting and sensing light
Compound semiconductors operate at much
higher speeds and lower power consumption
It is these advanced properties which determine the top
level markets for our materials.
Licence Income
Licensing income reflects a new revenue stream to
commercialise our IP portfolio accounting for 7% of the
Group’s sales in 2015. IQE has developed a powerful IP
portfolio which we are now able to monetise from both
product sales and licensing of the IP. The IP licence
income in 2015 includes a combination of upfront and
recurring income.
Wireless
Photonics
Infrared
CMOS++
Licensing
The emerging markets of Solar and Power control are
not yet significant enough to be separated in our
segmental reporting.
Wireless
Wireless sales accounted for 70% of the Group’s sales in
2015 down from 80% in 2014. 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 other connected
devices.
Photonics
Photonics sales accounted for 14% of the Group’s sales
in 2015 up from 11% in 2014. The photonics market
covers applications that either emit or detect light. We
segment the photonics market into:
Emitters and detectors
Solar (CPV)
Lighting
Infrared
Infrared sales accounted for 8% of the Group’s sales in
2015 and 2014. The Infrared market uses indium
antimonide and gallium antimonide engineered materials
that enable high resolution Infrared systems. Whilst key
markets are currently limited to defence programmes,
there are likely to be major future opportunities in
commercial markets in areas such as sensing
applications for autonomous and driverless vehicles.
Page !20
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Wireless
The wireless communications market has grown rapidly
in recent years reflecting the increasing adoption of
wireless technology, coupled with the need for an
increased compound semiconductor content to support
greater sophistication of mobile devices.
Whilst handset replacement cycles have slowed,
innovations such as wearable devices are expected to
reignite the desire to upgrade connected devices such as
smartphones. Coupled with the widely held view that the
Internet of Everything will see 50 billion connected
devices by 2020, the overall wireless market is expected
to continue to grow with the global roll out of LTE, 4G,
5G and the evolution of WiFi.
According to industry analyst, IDC, smartphone
shipments reached 1.43 billion units in 2015, led by
Samsung with a 24% market share (342.8 million units)
and Apple with a 16% market share (231.5 million units).
Gartner estimated that smartphones represented 75% of
the total of 1.91 billion handset sales in 2015, forecasting
modest growth of 1.9% in 2016.
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 compound semiconductor content
with 5G expected to demand a quantum leap in speed,
power and efficiency with operating frequencies
expected to operate above 60GHz compared with less
than 3GHz protocols for existing 4G networks.
The migration to new WiFi standards is another major
driver for RF components.
The 802.11ac WiFi standard operates at 5GHz rather
than the 2.6GHz currently used. The higher frequency
which greatly increases the range and reliability of WiFi
networks will further raise the demand for compound
semiconductor based RF devices.
Growth in the compound semiconductor content in
smartphones 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.
Page !21
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
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, finger
navigation and a wide range of other sensing
applications.
Optical interconnects
Currently, wired data transmission in the home, the office
and in data centres is largely undertaken using copper
cables. However, data traffic is growing at an explosive
rate due to technologies such as high definition imaging,
video streaming, the Internet of Things (IoT) and cloud
computing. This phenomenon is necessitating a switch
from copper wires to optical communication. This is a
natural evolution which mirrors the transformation that
has already taken place in the telecoms infrastructure.
Optical interconnects offer significantly higher-speed data
transfers over much longer distances than their copper
counterparts, and are much more efficient. Data centres
have become major consumers of electrical energy,
rivalling traditional heavy industries in terms of the power
requirements needed to keep large warehouses full of
servers operating and cooled. It is therefore of little
surprise that enterprises such as data centres are
amongst the first adopters, where optical technology
now offers both higher performance and lower overall
operating cost compared with copper.
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 64
Gb/s already demonstrated.
Gesture recognition
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 are
expected to appear in many new product launches over
the coming years.
The potential applications for this technology extend far
beyond 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. It
is anticipated that many household appliances will be
controlled by gesture.
Precision focusing
The “time of flight” measurement used for gesture
recognition applications is also being utilised in high-
speed, precision focusing applications for a wide range
of camera devices, including smartphones.
Laser projection
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 miniaturised and
does not require focusing optics. This technology is
called pico projection.
Page !22
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Infrared
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 enables 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 with leading industry players and
government agencies in the development and supply of
infrared materials based on antimonide (Sb) materials.
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 factors are reducing cost and improving
the ambience of these units.
High quality gallium nitride on silicon (GaN on Si) provides
the route map to achieving this, which will revolutionise
residential and commercial lighting around the planet
over the coming years.
Solid state lighting (LEDs)
Light emitting diodes (LEDs) are a high performance, low
cost, green alternative to incandescent light bulbs.
Global concerns about climate change and the Earth’s
dwindling natural resources continue 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.
Alternative low energy, compact fluorescent lighting is
unpopular because of perceptions of low quality lighting
and on-going issues with heavy metal content including
mercury.
Solar
Solar cells utilising compound semiconductors (called
CPV or Concentrated PhotoVoltaics) provide the highest
efficiencies 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% which compares with typical efficiencies of
around 18% from amorphous silicon solar panels, while
thin film technology is typically around 10 to 15%
efficient.
A further advantage of compound semiconductors is
their tolerance of higher temperatures and robustness to
cosmic radiation, which makes compound
semiconductor based alternatives especially suitable for
space power applications.
Page !23
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
CMOS++
Advanced technologies
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’s deal to acquire Translucent’s unique ‘cREO™’
technology creates a significant new platform to drive our
business into several new large volume areas.
Translucent’s cREO™ technology offers a unique
approach to the manufacture of a wide range of
innovative Compound Semiconductor on Silicon
products, including gallium nitride (GaN) on silicon (Si)
for the burgeoning Power switching and RF technologies
markets. The technology is protected by a wide ranging
IP portfolio.
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 our intellectual property in this field has
the potential to revolutionise the semiconductor world,
and in so doing will create significant long-term value to
IQE shareholders.
Power
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 temperature, 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 electric vehicles.
It is estimated that globally, 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 power adapters that we use for our electronic
devices, such as laptop power supplies, provide a vivid
example of this phenomenon by virtue of the electrical
energy that is lost in the form of heat generated through
the conversion process.
GaN offers superior performance and efficiency that are
orders of magnitude better than the silicon technologies
that dominate power switching devices today. Indeed,
this technology has the potential to eliminate up to 90%
of the energy lost through switching.
Our power business has made strong progress through
2015, achieving several key technical milestones and
building commercial partnerships.
Page !24
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Industry positioning
The Group has established the platform for
Strategic report: our strategy
IQE has been at the forefront of the compound
semiconductor industry since 1988 and has
developed an unparalleled depth and breadth of
technology with in its industry.
The Group leverages its technology leadership and
scale to deliver the performance, cost points and
security of supply to support increasing mass
market adoption across a significant number of
high volume market verticals.
IQE is currently global leader in the supply of
advanced wireless materials, and has aims to
replicate this success in its other primary markets:
photonics, infrared, advanced solar (CPV), power
switching and advanced electronics.
delivering this strategy:
Global footprint spanning US, Europe and Asia
Breadth and depth of advanced semiconductor
materials technology
Talented, committed and experienced team
Proven credibility and reputation
Secure multi-site supply
Scale and cost leadership
Largest capacity in the industry
Page !25
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: operational highlights
Also, as part of its strategy for diversification, IQE has
engaged with major industry players across multiple
market sectors with the aim of establishing high-tech
supply chains or “clusters” based on compound
semiconductor technologies.
A key element in the formation of a compound
semiconductor cluster was the establishment of the
Compound Semiconductor Centre (CSC), a Joint Venture
(JV) with Cardiff University.
The CSC was formed in August 2015 and IQE’s
contribution was equipment with a market value of
£12m, which was matched by a £12m cash contribution
from Cardiff University.
Operational highlights during 2015 included continued
organisational development, improvements in operational
efficiencies and market diversification.
Organisation development
The Group continued with its Organisational
Development Programme. This has involved transferring
production between sites to improve operational
efficiency, enabling the Group to reduce its operating
costs and achieve its cost reduction targets.
Improvements in operational efficiencies
Continuous improvement is an ongoing process across
IQE’s global operations, with numerous programmes
under way at any given time.
A key feature of IQE’s global footprint is the ability to
develop and adopt best practice across multiple
platforms, multiple products and multiple market sectors.
Market diversification
The Group has established six Business Units along
market lines, to address its primary and emerging
markets.
Each Business Unit has a clear product and customer
focus, but continues to benefit from the production and
technology synergies of the whole Group. Our
manufacturing sites monitor production efficiencies,
delivery performance and quality, aligned to the overall
Group objectives.
Page !26
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: key development milestones
Intellectual property
IQE continues to develop a powerful Intellectual Property
(IP) portfolio and works closely with a number of partners
to develop and commercialise leading edge
technologies.
However, largely due to the highly sensitive commercial
nature of such developments, IQE enters into non-
disclosure agreements (NDAs) with its partners to protect
both its own and its customers’ IP. The developments
outlined here relate to programmes about which
information is available in the public domain.
The Photonics Institute for Manufacturing Innovation
(IP-IMI)
IQE has been announced as a key partner in a new
consortium to establish the United States’ first Integrated
Photonics Institute for Manufacturing Innovation (IP-IMI).
Created as part of President Obama's National Network
for Manufacturing Innovation (NNMI), the IP-IMI is
designed to bring industry together with academia and
government to advance the state-of-the-art in the
design, manufacture, testing, assembly, and packaging
of photonic integrated circuits.
The consortium, known as the American Institute for
Manufacturing Integrated Photonics (AIM
Photonics), comprises 55 leading industrial partners,
including Intel, IBM, Infinera, HP, Honeywell and TI along
with numerous other leading edge companies,
universities and laboratories, and is led by the Research
Foundation of the State University of New York (SUNY).
IQE’s role in the consortium is to provide advanced
epitaxy services to the Institute partners.
The institute will provide central facilities through which
academia, SMEs and large corporations can access
latest technology for design and manufacture of
photonics devices providing a route to commercialisation
through high-value, high-volume manufacturing.
Exclusive Licence of the Unique ‘cREO™’
Technology
In September 2015, IQE signed a deal to take
Translucent Inc’s unique ‘cREO™’ technology to market.
The deal provides a significant new platform to drive our
business into several new large volume areas.
Translucent’s cREO™ technology offers a unique
approach to the manufacture of a wide range of
innovative Compound Semiconductor on Silicon
products, including gallium nitride (GaN) on silicon (Si)
for the burgeoning Power switching and RF technologies
markets. It is protected by a wide ranging IP portfolio
consisting of 74 granted patents, and 13 additional
patent applications.
Gallium Nitride (GaN)
Gallium nitride on Silicon (GaN on Si) is driving a
technology shift in the multi-billion dollar power switching
and LED markets. IQE has continued to push the
technology boundaries and is making rapid progress
both technically and in developing commercial
relationships in the supply chain.
This includes supplying commercially ready 100mm
gallium nitride (GaN) on silicon carbide (SiC) epiwafers
that were used to produce record results for both high
gain and high power density transistor devices, enabling
for the first time, flexible monolithic microwave integrated
circuit (MMIC) design for efficient high-voltage/high-
power broadband operation at frequencies ranging from
0 to 40 GHz.
These results, achieved on our GaN on SiC epiwafers,
demonstrate the ability of IQE to produce record-
breaking, world leading results on commercial platforms
that enable today’s leading edge satellite
communications and will be essential for enabling next
generation wireless technologies.
Page !27
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: financial review
Revenue
SG & A
Revenues of £114.0m were up 2% on 2014 (£112.0m).
Strong growth in photonics revenues (up 28% to
£16.0m), and the generation of license income (£8.0m)
as a new income stream, were partially offset by a
reduction in wireless revenues (down 11% to £79.5m).
Revenues in other markets were broadly flat year-on-year
at £10.5m (2014: £10.4m).
The license income was earned from licenses to Joint
Ventures (JVs). These JVs are commercial entities
seeking to develop and commercialise new products, to
which IQE has first manufacturing rights. IQE’s equity
share in each JV is ~50%, and it shares control of these
JVs with its JV partners. The license revenue earned and
recognised by IQE reflects only its share (~50%) of the
gross income (ie is stated after the elimination of
unrealised gains). Given that the JVs are related parties,
the licence fees were determined with independent
validation. These license fees are primarily upfront fees,
although there is a recurring element. This is consistent
with the Group’s strategy to monetise its IP through
production and licensing where appropriate. The Group
is also exploring further opportunities to license IP to third
parties. By its nature this income is inherently lumpy. In
Q1 of 2016 the group has earned further upfront license
income with JV’s of approximately £2m.
The reduction in wireless revenues reflects the well
publicised slowdown in the smartphone market during
the second half of 2015, which was exacerbated by
inventory adjustments through the supply chain.
Gross profit
Adjusted gross profit increased from £31.6m to £32.4m
largely driven by the increase in revenue. Reported gross
profit increased from £26.0m to £30.7m. As a
percentage of sales, adjusted gross margins were stable
at 28%, whereas reported gross margins increased from
23% to 27%.
Other income
Other income of £0.8m relates to a gain on the reduction
of the estimated remaining balance of contingent
deferred consideration payable in respect of a previous
acquisition. The payments under this contingent deferred
consideration arrangement cease during 2016. The prior
year comparative was a £1.7m charge which related to
provisions for onerous leases and the impairment of fixed
assets, which were partially offset by a gain on release of
contingent deferred consideration.
Adjusted selling, general and administration expenses
(SG&A) decreased from £13.9m to £13.5m, which
includes the benefit of improved efficiencies. Reported
SG&A decreased from £17.1m to £15.5m.
Operating profit
The profit on disposal of fixed assets of £5.2m primarily
reflects a gain of £4.8m on the establishment of the UK
JV, in which the Group contributed equipment in return
for its 50% equity share (see note 4). In addition, other
unrelated disposals of equipment realised a net gain of
£0.4m.
Adjusted operating profit increased by 8% from £17.6m
to £19.0m, reflecting higher sales and the margin benefit
from license income. Reported operating profit increased
3x from £7.2m to £21.2m, which also reflects the
restructuring charges included in 2014.
Interest
Interest costs reduced from £1.9m to £1.8m reflecting
the reduction in borrowings, and a reduction in the
imputed (non cash) interest charges relating to the
discounting of long term balances.
Tax
There was a net tax credit of £0.5m in respect of the
underlying profit, which was consistent with the prior year
(2014: £0.5m credit). In addition, there was a £0.3m tax
credit relating to the exceptional items, compared with a
tax charge of £3.8m on exceptional items in 2014. The
Group has sufficient tax losses available to shield future
tax payable of circa £37.5m.
Profit after tax
Adjusted profit after tax increased by 8% from £16.7m to
£18.1m, and reported profit after tax increased from
£2.0m to £20.1m. The adjusted fully diluted earnings
per share was 2.60p, up 7% from 2.42p in the prior year.
Reported diluted earnings per share was 2.90p, up from
0.24p in 2014. The Board will not be recommending the
payment of a dividend.
Cash flow
Cash inflow from operations, before exceptional items,
increased 15% from £19.6m to £22.6m. After
exceptional items, cash generated from operations
increased 41% from £14.9m to £21.0m.
Page !28
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: financial review (continued)
Capital investment
Debt
Cash investment was £10.0m up from £9.4m in the prior
Balance sheet leverage was down £11.6m from £51.9m
year. Investment in new product development of £5.0m
was consistent with the prior year (£5.0m), whilst
investment in other intangibles was slightly lower at
£1.2m (2014: £1.3m). The investment in property, plant
and equipment increased by £0.6m from £3.2m to
£3.8m, which remains towards the lower end of the
normal expected levels of maintenance capex.
to £40.3m, as gearing reduced from 30% to 22%. This
reflects that deferred consideration relating to previous
acquisitions reduced by £3.5m from £20.6m to £17.1m,
and that net debt reduced by £8.1m from £31.3m to
£23.2m. This continues the trend in strong cash
generation whilst maintaining investment in new
technologies.
Strategic report: KPIs and financial highlights (Dashboard)
Sales (£M)
Operating profit (£M)
(before exceptional items)
Cash from operations (£M)
(before exceptional cash flows)
FD EPS (pence)
(before exceptional items)
Leverage (£M)
Deferred consideration
Net debt
Gearing (%)
Leverage and gearing: restated FY12 to include balances from acquisition on 15 Jan 2013
Page !29
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: current trading and outlook
The Group’s global leadership in wireless and its
developing pipeline of high growth opportunities
The Board remains confident of achieving our
expectations for the full year and we anticipate that we
positions it well to continue its growth profile over the
coming years.
The current financial year has started well and trading is
in line with expectations. The outlook for the full year
remains positive, with strong prospects reflecting
increasing revenue diversity and a broad IP portfolio.
will continue to benefit from strong cash flows.
Strategic report: innovation, research and development
R&D activity
Open Innovation
Technology leadership lies at the heart of IQE’s strategy.
This is supported by a culture of innovation and constant
improvement.
IQE is classified by the Welsh Government as an “Anchor
Company” in acknowledgement of its status as an
exemplar in terms of its global leadership.
The Group is engaged in a number of research and
As an Anchor Company, IQE was invited by the Welsh
Government to run an Open Innovation pilot programme
which has been highly successful in establishing new
technology networks to identify long-term opportunities.
IQE’s open innovation programme, ‘OpenIQE’ is actively
helping to boost regional economies by collaborating
with industrial and academic partners to identify supply
chain opportunities within Wales and across Europe.
Further details about IQE’s open innovation programme
can be found on a dedicated website:
www.openiqe.com
CoInnovate
As part of IQE’s open innovation programme, a key
“CoInnovate” conference was held in Cardiff, UK in June
2015. The conference was jointly sponsored by the
Welsh Government, academic partners as well as IQE
and industrial partners including Airbus, GE Healthcare
and General Dynamics,
The CoInnovate conference website is at:
www.coinnovate.co.uk
development programmes in collaboration with
customers, academia, research organisations and
government agencies. These programmes are funded
through a combination of internal cash generation,
customer funding, and government support.
Development programmes are geared towards 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:
• Multi junction CPV solar cells
• 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.
Industry events
IQE actively participates in major industry events and
frequently chairs, hosts and presents technical papers at
international conferences.
Page !30
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
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 customers' 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;
Strategic report: our commitment
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.
As an AIM listed company, IQE is not eligible to
participate in the London Stock Exchange FTSE4 Good
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.
Business conduct and ethics
Our Code of Conduct requires our employees to carry on
their business activities in a respectful manner and to
avoid bringing IQE’s reputation into disrepute. This
includes complying with the laws and regulations in the
countries in which we operate and do business.
Our Code of Conduct also requires staff to uphold high
standards of ethics throughout the Group. Our policy and
controls are designed to prevent bribery, and contain
whistle blowing provisions which enable any employee to
raise concerns about a potential breach of policy or
malpractice.
The company has also developed and implemented
policies to comply with the requirements of the UK’s
Modern Slavery Act. Reference to the policy may be
found on the corporate website at www.iqep.com.
The community
IQE engages with the communities in which it operates,
supporting charitable causes, encouraging staff
participation in sponsoring events and challenges, as well
as taking part in initiatives such as Young Enterprise,
Business Class (Business in the Community) and
STEMNET, encouraging students to follow science,
technology engineering and mathematics from school
through to university studies.
Page !31
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Quality
Health & Safety
IQE’s reputation for quality and excellence in products
and service is second to none. A philosophy of total
IQE pays a great deal of attention to ensuring the health
and safety of everyone involved in the business.
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.
IQE's ongoing commitment to providing the highest
quality of service ensures customer satisfaction covering
the entire customer relationship experience, from initial
enquiry through to delivery and after-sales support.
IQE's quality programme 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 characterisation 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
characterisation technologies and new materials
solutions. IQE is actively involved in partnerships with its
suppliers to develop the next generations of epitaxy and
metrology equipment with a focus on increasing
production efficiencies, reducing epiwafer costs, and
maintaining its technological leadership.
The environment, health & safety (EHS) group completed
a restructure at the beginning of 2016, which included
continuation of training and accreditation of competent
persons, appointment of safety practitioners whose role
is to minimise risks of injury at work; ensure legislative
compliance; and assist in creating and monitoring safety
practices to be followed. The restructure also included
the designation of safety advisors, with the appropriate
expertise to support in specific areas of activity such as
LEV and pressure systems.
The EHS group is actively involved in industry-wide
initiatives and is proactively registering under new
initiatives such as REACH.
The EHS group has also recently completed an audit and
review of chemical control processes to ensure
continued compliance with HazComm regulations.
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.
IQE’s policies and procedures are in the process of being
updated to meet the September 2015 vision of the
environmental management standard, ISO14001, which
will be rolled-out across the Group during 2016-17. The
new standard places a greater emphasis on Risk and
opportunity management embedded in the organisation.
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.
Page !32
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic report: principal risks and uncertainties
The Group has an established process for the
identification and management of risk as part of the
governance framework. Management of risk is the
responsibility of the Board of Directors. In managing risk
a comprehensive and robust system of controls and risk
management processes have been developed and
implemented by the board.
The Board’s role in risk management includes:
promoting a culture that emphasises integrity at all levels
of business operations;
embedding risk management within the core
processes of the business;
approving appetite for risk;
determining the principal risks;
ensuring that these are communicated effectively
across the businesses; and,
setting the overall policies for risk management
and control.
The principal risks affecting the Group are identified by
the Group Executive team within their functional areas of
responsibility and reviewed by the Board.
Risk management within the business involves:
1.
Identification and assessment of individual risks
2. Design of controls and operational processes to
mitigate the risks
3.
Testing of controls through internal review and audits
4. Conclusion on the effectiveness of the control
environment in place
In identifying risks we analyse risks across four key areas:
strategic risk;
commercial risk;
operational risk; and,
financial risk.
The principal risks identified are listed in order of severity.
Mitigation, where possible, is shown by each identified
risk area.
Principal risk: COMPETITION
BUSINESS RISK
MITIGATION
Loss of share with a
Focus on quality, value and customer service
significant customer.
Price erosion due to
predatory pricing
from a competitor
Develop and maintain close relationships with customers to become
the “materials partner of choice”, by forming multilevel partnerships
from material design, to pilot and volume production.
Continue to invest in product development to ensure competitive
advantage.
Qualification timescales can be long but once a product and
relationship is established, it creates significant barriers to entry for
competitors.
In some cases, customers seek second source supply arrangements
to meet their own business continuity planning policies, our multiple
site capabilities provide some mitigation against this risk.
Y-o-Y CHANGE
IN LIKELIHOOD
Potential Impact:
High
Effect:
Sales volumes
and profitability
Page !33
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Principal risk: TECHNOLOGICAL CHANGE
BUSINESS RISK
MITIGATION
A disruptive
IQE actively engages with customers, educational institutions and
technological change
government agencies on a range of research and development (“R&D”)
programmes.
Where appropriate IQE has protected IP through patents. It is not
always appropriate to protect “process know how” through patents.
Rigorous controls over segregation of duties, data protection, and
access controls are implemented to secure our “trade secrets”.
has not been
anticipated as a
result of a lack of
investment in new
products and
materials.
We do not
adequately identify
and protect our IP
Principal risk: FINANCIAL LIQUIDITY
BUSINESS RISK
MITIGATION
The business does
The Group prepares regular financial forecasts to evaluate its funding
not maintain
sufficient funding
and liquidity to meet
its obligations as
they fall due.
and liquidity requirements for the foreseeable future.
These forecasts are reviewed and approved by the Board.
Based on these forecasts appropriate funding and liquidity solutions
are put in place to ensure that appropriate headroom is maintained.
At the year-end 31 December 2015 we have £41.1m of committed
facilities against which there was net debt of £23.2m.
Principal risk: NATURAL DISASTERS
BUSINESS RISK
MITIGATION
Natural disaster
IQE operates multiple global manufacturing facilities which mitigates
disrupts production
against the impact of natural disasters on IQE.
capability, supply of
materials or
customer demand.
Our active programme to second source or dual site sources for all
critical supplies mitigates supplier risk. Similarly our larger customers
have multi-site production to mitigate their risk.
IQE maintains appropriate business interruption insurance.
Page !34
Y-o-Y CHANGE
IN LIKELIHOOD
Potential Impact:
High
Effect:
Sales volumes
and profitability
Y-o-Y CHANGE
IN LIKELIHOOD
Potential Impact:
High
Effect:
Financial loss &
reputational
damage
Y-o-Y CHANGE
IN LIKELIHOOD
Potential Impact:
Medium/High
Effect:
Costs, Sales and
profitability
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Principal risk: RETENTION OF KEY EMPLOYEES
BUSINESS RISK
MITIGATION
Loss of key people
Retention and development of its workforce is critical to the long term
and critical skills
success of the Group.
Insufficient skilled
IQE’s people are the heart of the business and in order to promote the
employees
development and retention of its staff IQE offers career progression,
Poor engagement
and morale
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.
Y-o-Y CHANGE
IN LIKELIHOOD
Potential Impact:
Medium
Effect:
Quality issues and
increased cost
Principal risk: BUSINESS INTERRUPTION - SUPPLY CHAIN
BUSINESS RISK
MITIGATION
Dependency on sole
The raw materials which sustain IQE’s products are not scarce
Y-o-Y CHANGE
IN LIKELIHOOD
supplier
Availability of
qualified raw
materials
resources.
Active programme to maintain cross qualified second sources.
Rigorous supplier quality management processes.
Maintain close relationships with its key suppliers in order to keep well
Potential Impact:
informed about potential supply issues.
Principal risk: CUSTOMER CONCENTRATION
BUSINESS RISK
MITIGATION
Dependency on low
The wireless sector is highly concentrated with the top 5 RF Chip
number of customers
companies accounting for the vast majority of the wireless market.
could result in
significant impact
from a loss of share
from a customer.
The group has two
customers which
individually account
for more than 10% of
the group sales.
IQE’s strategy is to embed itself as a significant supplier of advanced
semiconductor materials with all of the major RF chip companies in
order to reduce the potential impact of swings in market share
between these companies.
The customer qualification times and high quality standards creates
significant barriers to entry for competitors.
Maintain and advance our technological advantage to deliver value
and retain a competitive position.
Focus on quality, value and customer service.
Page !35
Medium
Effect:
Quality issues and
cost pressure
Y-o-Y CHANGE
IN LIKELIHOOD
Potential Impact:
Medium/Low
Effect:
Costs, Sales and
profitability
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Principal risk: LEGISLATIVE COMPLIANCE
BUSINESS RISK
MITIGATION
Failure to comply
Regular reporting of export and ITAR compliance and detailed internal
control processes and procedures
Continuing education of the team on the legislative developments and
requirements.
Internal reviews and external audits
with applicable
legislation, such as:
Export Control,
International Traffic
In Arms (ITAR),
Bribery Act,
Employment
legislation and
company legislation.
Y-o-Y CHANGE
IN LIKELIHOOD
Potential Impact:
Medium/Low
Effect:
Financial loss &
reputational
damage
EU Referendum
The UK government has announced that there will be a
referendum on whether the UK should remain in the
European Union which will be held on the 23rd June
2016.
The result on the 23rd of June is unlikely to have any
significant short term impact on IQE’s business as IQE
trades both within and external to Europe, with Asia and
the USA being the Group’s dominant markets and the
US Dollar being the Groups dominant currency.
However, as a world leader in advanced semiconductor
materials, IQE is actively engaged on a number of
collaborative activities in areas of research and
development including materials such as graphene. IQE
has established trading, development partnerships and
grant funding from across the EU.
IQE’s position is that continued membership of the EU
would be the most preferred outcome from the
forthcoming referendum.
Continued membership of the EU offers potential longer-
term opportunities for closer collaboration between
industry, academia and government agencies across
Europe for the development and commercialisation of
next generation technologies. The Company’s
management believe that Europe can play a much larger
global role in developing and commercialising new and
emerging technologies that can and will address 21st
century societal issues. Horizon 2020 and its flagship
pilot line initiatives (ECSEL), Important Projects of
Common European Interest, and Photonics 21 are clear
examples of Europe’s ambition to play a leading role in
next generation technologies, whilst addressing the
major societal challenges faced by all economies.
Innovation and collaboration are vital components in
developing advanced capabilities and technology
leadership. Membership of a reformed EU should help
engender an environment that encourages collaboration
between companies, academics and government
agencies across member states, and the UK should play
a major role in these collaborative innovation activities.
Page !36
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Strategic Report
A report of the Group’s performance during the year and
future developments is given in the Chairman’s
Statement and Chief Executive’s Review on pages 4 to 7.
The directors use a number of key performance
indicators to manage the business, disclosed in the
financial review on page 28. Non financial KPIs are not
disclosed.
These areas form the required elements of the strategic
report presented on pages 18 to 37 and has been
approved by the Board of Directors and signed on its
behalf by:
Phillip Rasmussen
Chief Financial Officer & Company Secretary
22 March 2016
Drew Nelson
CEO & President
22 March 2016
Page !37
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Directors’ biographies
Dr Drew Nelson OBE (61)
President and Chief Executive Officer
Dr 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.
Directorships: PhotonStar LED Group plc. (to 8th December 2015)
Phillip Rasmussen (45)
Chief Financial Officer 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.
Dr Howard Williams (61)
Chief Operations Officer
Dr 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 (which became
IQE in 1999) 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.
Page !38
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Dr Godfrey H H Ainsworth FCA (60)
Chairman, Non-Executive Director, Chairman of the Audit Committee
Following a Ph.D at Cardiff University, Dr 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 in
November 2009. He has held several Non-Executive Directorship appointments,
including assignments for 3i plc, The Business Growth Fund 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, Cardiff
Partnership Fund.
Professor Simon J Gibson OBE (58)
Non-Executive Director, Chairman of the Remuneration Committee
Professor Simon Gibson 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 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.
Dr David Grant CBE (68)
Senior Independent Director
Dr 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, INNOVATE UK, NPL.
Page !39
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Directors’ report
The directors present their annual report and the audited
consolidated financial statements for the year ended
31 December 2015.
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 on pages 20 to 29.
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 33 to 36. The future outlook for the Group is set
out on page 29.
Dividends
The directors do not recommend the payment of a
dividend (2014: £nil).
Directors
The directors in office at 31 December 2015 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 to 46.
Substantial interests in shares
As at 29 February 2016, 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:
...........................
T Rowe Price International
AXA Investment Mgrs
Milton Asset Mgt
Mr Richard I Griffiths
Herald Investment Mgt
Hargreaves Lansdown Asset Mgt
Barclays Wealth
Sanlam Four Investments UK
TD Direct Investing
M&G Investment Mgt
.....................................
............................................
.......................................
...................................
...................
..............................................
.........................
.........................................
......................................
10.68%
8.79%
6.08%
5.38%
5.22%
4.91%
4.83%
4.38%
3.40%
3.11%
Research and development
The group incurred costs in respect of research and
development during the year of £5,117,000 (2014:
£5,665,000) of which £4,979,000 (2014: £4,957,000)
has been capitalised in accordance with IAS 38
(“Intangible assets”). The remaining research and
development costs totalling £138,000 (2014: £698,000)
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
2015 was 51 days (2014: 74 days).
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, notice
board announcements and “Town Hall” meetings.
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, and considering
financial forecast to enable them to consider 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.
shareholder analysis by Equiniti
Page !40
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Principal risks and uncertainties
Details of the principal risks and uncertainties impacting
the group have been included in the strategic report on
pages 33 - 36.
Treasury
IQE operates a central treasury function which acts in
accordance with specific board policies. Speculative
transactions are not permitted. The significant treasury
policies relating to interest rates, foreign currency and
liquidity are detailed in note 19.
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 and company for that period.
In preparing these financial statements, the directors are
required to:
select suitable accounting policies and then apply
them consistently;
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
make judgements and accounting estimates that are
reasonable and prudent;
by:
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.
P J Rasmussen
Finance Director & Company Secretary
22 March 2016
Page !41
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Remuneration report
Introduction
This report has been prepared applying the principles of
the disclosures required for quoted companies under the
Companies Act 2006 which were last amended in 2013
to introduce enhanced statutory requirements for the
disclosure of directors’ remuneration. Although not
required to, the directors have decided to provide some
of the 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 adopting the spirit of
the UK Corporate Governance guidance. A resolution to
approve the report will be proposed at the forthcoming
Annual General Meeting of the company.
(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, Dr D Grant and S J Gibson. The
Chairman of the committee is S J Gibson.
The committee follows the principles of the UK Corporate
Governance guidance, 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
twice during 2015 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 consideration to Schedule B of the Best Practices
Provisions annexed to the Listing Rules of the Financial
Conduct 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.
No bonuses were awarded to the directors in respect of
2015.
(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.
Page !42
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
(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
540,000 share options to staff (2014: 7,095,762 share
options). During 2015, No share options were awarded
to Directors in either 2014 or 2015.
On 7th January 2016 the Directors were awarded
17,625,562 deferred shares under the Company’s Long
Term Incentive Plan (“LTIP”) based on external
benchmarking.
As at 31 December 2015, 45,532,098 share options
(2014: 50,536,520 share options) granted under the IQE
Plc Share Option Scheme remain outstanding with
exercise prices ranging from nil cost to 50p/option (2014:
nil cost to 86p/option). No share options were exercised
by directors during the year (2014: 8,541,823 share
options). None of the directors’ share options lapsed
during the year (2014: nil). The numbers and prices of
share options at 31 December 2015 and 31 December
2014 were as shown in the table below:
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
2015
No. of options
2014
No. of options
14,821,836
25,062,958
4,384,014
1,263,290
16,364,700
28,272,562
4,335,000
1,564,258
45,532,098
50,536,520
(g) 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 2015, and there were no unfunded
pension promises or similar arrangements for directors at
31 December 2015.
(h) 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.
(i) 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 2015.
Page !43
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Dr G H H Ainsworth service fees of £125,000 (2014:
£125,000). In 2015 these fees were paid in cash to
Horton Corporate Finance. In 2014 these fees were paid
via a combination of cash and shares to Horton
Corporate Finance. Dr G H H Ainsworth is a managing
partner of Horton Corporate Finance. VAT was charged
on the invoices from Horton Corporate Finance and this
was recovered by the company. The cash element was
£125,000 (2014: £95,000). The shares issued in relation
to 2014 remuneration were to a value of £30,000 in the
form of 105,340 new ordinary shares of 1p issued during
2014 and 46,816 new ordinary shares issued in January
2015.
S J Gibson service fees of £50,000 (2014 £46,250) were
paid in cash. Of these fees £8,000 (2014 £8,000) was
paid to S J Gibson and £42,000 (2014: £38,250), was
paid to Fishstone Limited. 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.
Dr D Grant service fees of £50,000 (2014: £46,250) were
paid in cash.
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 2015 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.
(j) Share price performance
The IQE plc share price has been compared with the AIM
market all-share index for the four year period 2012 to
2015 as this was considered to be the most
representative market group.
Share price performance (IQE vs AiM)
35p
30p
25p
20p
15p
10p
IQE
AiM
2012
2013
2014
2015
Page !44
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
(k) Directors’ interests in ordinary shares of IQE Plc - (audited)
The interests in ordinary shares of IQE Plc of those directors holding office at 31 December 2015 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
As at
1 January 2015
31 December 2015
35,259,218
4,292,965
3,473,357
3,227,339
301,855
215,000
46,769,734
35,259,218
4,292,965
3,473,357
3,274,155
301,855
215,000
46,816,550
On 7th January 2016 the directors were awarded deferred shares under the Company’s LTIP, see page 43. There have
no other changes to the director’s interests between the year end and the date the accounts were issued.
(l) Aggregate directors’ remuneration - (audited)
The total amounts paid for directors’ remuneration during 2015 were as follows:
Basic salaries
Bonuses
Non-executive fees
Subtotal salaries and fees
Car allowance
Benefits in kind
Money purchase pension contributions
Total
(m) Directors’ emoluments - (audited)
The aggregate emoluments paid to each director during 2015 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
Salary
fees and bonuses
£’000
Car
Allowance
£’000
Benefits
in kind
£’000
Pensions
£’000
480
322
322
66
44
44
7
1
7
-
28
28
Page !45
2015
£’000
1,124
-
225
1,349
154
15
56
2014
£’000
858
-
217
1,075
107
21
56
1,574
1,259
2015
Total
£’000
553
395
401
125
50
50
2014
Total
£’000
421
305
316
125
46
46
1,574
1,259
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
(n) Directors’ interests in share options of IQE Plc - (audited)
The interests in share options in IQE Plc of those directors who held office at 31 December 2015 were as follows:
Name of director
1 January 2015
As at
Options
granted
Options
exercised
Options
Cancelled
As at
31 December
2015
Date(s) from
which exercisable
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
3,145,433
3,269,715
2,391,252
-
-
-
8,806,400
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,145,433
1 Jan 2014 to 1 Jan 2017
3,269,715
1 Jan 2014 to 1 Jan 2017
2,391,252
1 Jan 2014 to 1 Jan 2017
-
-
-
8,806,400
Name of director
1 January 2014
As at
Options
granted
Options
exercised
Options
Cancelled
As at
31 December
2014
Date(s) from
which exercisable
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
7,946,186
5,140,250
4,261,787
-
-
-
17,348,223
-
-
-
-
-
-
-
(4,800,753)
(1,870,535)
(1,870,535)
-
-
-
(8,541,823)
-
-
-
-
-
-
-
3,145,433
1 Jan 2014 to 1 Jan 2017
3,269,715
1 Jan 2014 to 1 Jan 2017
2,391,252
1 Jan 2014 to 1 Jan 2017
-
-
-
8,806,400
The directors do not hold shares or share options in any group company other than IQE plc.
The highest and lowest mid-market share prices in
respect of the shares of IQE Plc during 2015 were
26.75p/share and 17.25p/share respectively (2014:
27.50p /share and 12.50p/share respectively). The mid-
market price of IQE plc shares closed at 17.50p/share as
at 31 December 2015 (2014: 17.75p/share).
In aggregate, the executive directors made a gain of £nil
(2014: £1,058,584) on the exercise of share options
during the year. The majority of these shares were
retained by the executive directors. Those sold 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 page 45. Dr Nelson made a gain of £nil
(2014: £581,594) as part of these exercises.
Approval
This report was approved by the Board of Directors on 22
March 2016 and signed on its behalf by:
S J Gibson, OBE
Remuneration Committee Chairman
Page !46
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Corporate governance report
Although not required to, the directors have decided to
Dr David Grant is recognised as the senior independent
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 2015, the
company has continued to apply the principles of best
practice governance adopting the spirit of the UK
Corporate Governance guidance.
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. 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
and or shares. 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.
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.
Page !47
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
(b) Audit Committee
(c) Remuneration and Nominations Committees
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
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.
Number of meetings held in 2015
Number of meetings attended in 2015
Executive
Dr A W Nelson
P J Rasmussen
Dr H R Williams
Non-executive
Dr G H H Ainsworth
S J Gibson
Dr D Grant
The remuneration committee consists of three non-
executive directors, S J Gibson, Dr D Grant and Dr G H
H Ainsworth. 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 2015 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:
Board
Audit
Committee
Remuneration
Committee
8
8
8
8
8
8
7
4
n/a
4
n/a
4
4
4
2
2
n/a
n/a
2
2
2
Page !48
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Internal control
a clearly defined organisational structure and limits of
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. 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 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:
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 the reporting of any variances in a
timely manner to the Board;
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.
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.
Page !49
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
The Annual General Meeting allows shareholders to raise
Audit and related services
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.
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 (audited) are as detailed
below:
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
- Financial due diligence service
- Tax advisory
- Tax compliance service
Total
2015
£’000
Total
2014
£’000
19
88
11
-
8
5
19
94
12
3
-
-
Total PricewaterhouseCoopers LLP (group auditors)
131
128
Ernst and Young (auditors of MBE Technology Pte Limited)
- Subsidiary company’s audit
- Tax services
Total Ernst and Young (auditors of MBE Technology Pte Limited)
Total
6
4
10
141
16
3
19
147
Page !50
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Independent auditors’ report to the members of IQE plc
Report on the financial statements
Our opinion
In our opinion:
IQE plc’s group financial statements and parent
company financial statements (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 2015 and of the group’s profit and the
group’s and the parent company’s cash flows for the
year then ended;
the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (“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.
What we have audited
The financial statements, included within the Financial
Report and Annual Accounts (the “Annual Report”),
comprise:
the consolidated and parent company balance sheets
as at 31 December 2015;
the consolidated income statement and statement of
comprehensive income for the year then ended;
the consolidated and parent company cash flow
statements for the year then ended;
the consolidated and parent company statement of
changes in equity for the year then ended; and
the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented
elsewhere in the Annual Report, rather than in the notes
to the financial statements. These are cross-referenced
from the financial statements and are identified as
audited.
The financial reporting framework that has been applied
in the preparation of the financial statements is IFRSs as
adopted by the European Union, and applicable law and,
as regards the parent company financial statements, as
applied in accordance with the provisions of the
Companies Act 2006.
In applying the financial reporting framework, the
directors have made a number of subjective judgements,
for example in respect of significant accounting
estimates. In making such estimates, they have made
assumptions and considered future events.
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion, the information given in the Strategic
report and the Directors’ report for the financial year for
which the financial statements are prepared is consistent
with the financial statements.
Other matters on which we are required to
report by exception
Adequacy of accounting records and information
and explanations received
Under the Companies Act 2006 we are required to report
to you if, in our opinion:
we have not received all the information and
explanations we require for our audit; or
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.
We have no exceptions to report arising from this
responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report
to you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have no
exceptions to report arising from this responsibility.
Page !51
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
We primarily focus our work in these areas by assessing
the directors’ judgements against available evidence,
forming our own judgements, and evaluating the
disclosures in the financial statements.
We test and examine information, using sampling and
other auditing techniques, to the extent we consider
necessary to provide a reasonable basis for us to draw
conclusions. We obtain audit evidence through testing
the effectiveness of controls, substantive procedures or a
combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and
to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report.
Colin Bates (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Cardiff
March 2016
Responsibilities for the financial statements and
the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of directors’
responsibilities 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) (“ISAs (UK & 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 parent 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.
What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK &
Ireland). 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
group’s and the parent 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.
Page !52
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Consolidated income statement
Consolidated income statement for the year ended 31 December 2015
Revenue
Cost of sales
Gross profit
Other income and expenses
Selling, general and administrative expenses
Profit on disposal of property, plant and equipment
Operating profit
Finance costs
Adjusted profit before tax
Adjustments
Profit before tax
Taxation
Profit for the year
Profit attributable to:
Equity shareholders
Non-controlling interest
Basic earnings per share
Diluted earnings per share
Note
3
4
4
5
7
4
8
10
10
2015
£’000
114,024
(83,372)
30,652
779
(15,452)
5,187
21,166
(1,790)
17,574
1,802
19,376
773
20,149
19,864
285
20,149
3.00p
2.90p
Adjusted basic and diluted earnings per share is presented in note 10.
The notes on pages 60 to 95 form part of these financial statements.
All items included in the profit for the year relate to continuing operations.
Consolidated statement of comprehensive income for the year ended 31 December 2015
Profit for the year
Currency translation differences on foreign currency net investments*
Total comprehensive income for the year
*This may be subsequently reclassified to profit or loss
Total comprehensive income attributable to:
Equity shareholders
Non-controlling interest
Page !53
2015
£’000
20,149
3,165
23,314
23,000
314
23,314
2014
£’000
112,011
(86,015)
25,996
(1,726)
(17,103)
-
7,167
(1,924)
16,189
(10,946)
5,243
(3,247)
1,996
1,632
364
1,996
0.25p
0.24p
2014
£’000
1,996
5,192
7,188
6,822
366
7,188
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Consolidated balance sheet
Consolidated balance sheet as at 31 December 2015
Non-current assets:
Intangible assets
Property, plant and equipment
Deferred tax assets
Financial Assets
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
Provisions for other liabilities and charges
Total current liabilities
Non-current liabilities:
Borrowings
Other payables
Provisions for other liabilities and charges
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to the shareholders of the parent:
Share capital
Share premium
Retained earnings
Other reserves
Non-controlling interest
Total equity
Note
2015
£’000
2014
£’000
11
12
8
15
14
15
17
16
18
17
16
18
20
86,843
65,154
14,210
8,000
82,079
66,588
12,332
-
174,207
160,999
21,215
23,050
4,644
48,909
18,276
24,463
5,584
48,323
223,116
209,322
(3,241)
(43,693)
(1,116)
(48,050)
(24,626)
(484)
(2,922)
(28,032)
(76,082)
147,034
6,655
49,600
70,200
18,146
144,601
2,433
147,034
(14,720)
(30,396)
(1,551)
(46,667)
(22,115)
(15,431)
(3,934)
(41,480)
(88,147)
121,175
6,603
49,108
50,336
13,009
119,056
2,119
121,175
The notes on pages 60 to 95 form part of these financial statements. These financial statements were approved by the
Board of Directors on 22 March 2016.
Signed on behalf of the Board of Directors.
P J Rasmussen
Dr A W Nelson
Page !54
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Consolidated statement of changes in equity
Consolidated statement of changes in equity for the year ended 31 December 2015
Share capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Exchange
rate
reserve
£’000
Other
reserves
£’000
Non-
controlling
interests
£’000
Total
equity
£’000
Balance at 1 January 2015
6,603
49,108
50,336
4,789
8,220
2,119
121,175
Comprehensive income
Profit for the year
Foreign exchange
Total comprehensive income
Transactions with owners
Share based payments
Issues of ordinary shares
Total transactions with owners
-
-
-
-
52
52
-
-
-
-
492
492
19,864
-
-
19,864
3,136
3,136
-
-
-
-
-
-
-
-
-
2,001
-
2,001
285
29
314
-
-
-
20,149
3,165
23,314
2,001
544
2,545
Balance at 31 December 2015
6,655
49,600
70,200
7,925
10,221
2,433
147,034
Share capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Exchange
rate
reserve
£’000
Other
reserves
£’000
Non-
controlling
interests
£’000
Total
equity
£’000
Balance at 1 January 2014
6,475
48,958
48,704
(401)
6,762
1,753
112,251
Comprehensive income
Profit for the year
Foreign exchange
Total comprehensive income
Transactions with owners
Share based payments
Issues of ordinary shares
Total transactions with owners
-
-
-
-
-
-
-
-
128
128
150
150
1,632
-
-
1,632
5,190
5,190
-
-
-
-
-
-
-
-
-
1,458
1,458
364
2
366
-
-
1,996
5,192
7,188
1,458
278
1,736
Balance at 31 December 2014
6,603
49,108
50,336
4,789
8,220
2,119
121,175
The notes on pages 60 to 95 form part of these financial statements.
Page !55
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Consolidated cash flow statement
Consolidated cash flow statement for the year ended 31 December 2015
Cash flows from operating activities:
Adjusted cash inflow from operations
Cash impact of adjustments
Cash inflow from operations
Net interest paid
Income tax (paid) / received
Net cash generated from operating activities
Cash flows from investing activities:
Capitalised development expenditure
Investment in other intangible fixed assets
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities:
Issues of ordinary share capital
Repayment of borrowings
Increase in borrowings
Net cash used in financing activities
Net (decrease)/increase 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 60 to 95 form part of these financial statements.
Note
23
24
24
25
25
2015
£’000
22,575
(1,604)
20,971
(1,403)
(459)
19,109
(4,979)
(1,198)
(3,825)
(10,002)
544
(15,109)
4,349
(10,216)
(1,109)
5,584
169
4,644
2014
£’000
19,614
(4,753)
14,861
(1,428)
1,258
14,691
(4,957)
(1,291)
(3,178)
(9,426)
278
(4,680)
1,305
(3,097)
2,168
3,258
158
5,584
Page !56
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Parent company balance sheet
Parent company balance sheet for the year ended 31 December 2015
Note
2015
£’000
2014
£’000
Non-current assets:
Investments
Intangible assets
Property, plant and equipment
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
Borrowings
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
13
11
12
15
16
17
16
17
20
29,070
1,441
4
30,515
77,711
-
77,711
108,226
(2,307)
(3,546)
(5,853)
(484)
(22,722)
(23,206)
(29,059)
79,167
6,655
49,600
12,505
10,407
79,167
28,430
332
18
28,780
81,606
2,065
83,671
112,451
(2,753)
(12,800)
(15,553)
(484)
(19,673)
(20,157)
(35,710)
76,741
6,603
49,108
12,624
8,406
76,741
The notes on pages 60 to 95 form part of these financial statements. These financial statements were approved by the
Board of Directors on 22 March 2016.
Signed on behalf of the Board of Directors.
P J Rasmussen
Dr A W Nelson
Page !57
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Parent company statement of changes in equity
Parent company statement of changes in equity for the year ended 31 December 2015
Share capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Other
reserves
£’000
Total
equity
£’000
Balance at 1 January 2015
6,603
49,108
12,624
8,406
76,741
Comprehensive expense
Loss for the year
Total comprehensive expense
Transactions with owners
Share based payments
Issues of ordinary shares
Total transactions with owners
-
-
-
52
52
-
-
-
492
492
(119)
(119)
-
-
-
-
-
2,001
-
2,001
(119)
(119)
2,001
544
2,545
Balance at 31 December 2015
6,655
49,600
12,505
10,407
79,167
Share capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Other
reserves
£’000
Total
equity
£’000
Balance at 1 January 2014
6,475
48,958
17,588
6,948
79,969
Comprehensive expense
Loss for the year
Total comprehensive expense
Transactions with owners
Share based payments
Issues of ordinary shares
Total transactions with owners
-
-
-
128
128
-
-
-
150
150
(4,964)
(4,964)
-
(4,964)
(4,964)
-
-
-
1,458
-
1,458
1,458
278
1,736
Balance at 31 December 2014
6,603
49,108
12,624
8,406
76,741
The notes on pages 60 to 95 form part of these financial statements.
Page !58
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Parent company cash flow statement
Parent company cash flow statement for the year ended 31 December 2015
Cash flows from operating activities:
Cash inflow from operations
Interest paid
Taxation
Net cash generated from operating activities
Cash flows from investing activities:
Investment in other equity investments
Investment in other intangibles
Purchase of property plant and equipment
Net cash used in investing activities
Cash flows from financing activities:
Issues of ordinary share capital
Repayment of borrowings
Increase in borrowings
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
The notes on pages 60 to 95 form part of these financial statements.
Note
23
13
11
12
17
2015
£’000
6,430
(1,088)
-
5,342
(25)
(104)
(2)
(131)
544
(13,000)
4,314
(8,142)
(2,931)
2,065
(866)
2014
£’000
4,152
(1,092)
86
3,146
(50)
(316)
(7)
(373)
278
(2,463)
1,305
(880)
1,893
172
2,065
Page !59
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
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
IQE plc Group’s principal activity are set out on page 40 of the directors report. The company is a public limited company, which is
listed on the Alternative Investment Market (AIM) and incorporated and domiciled in England and Wales. 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 except where fair value
measurement is required by IFRS, 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 IFRS IC interpretations. 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 standards, amendments and interpretations adopted by the group. The following standards have been adopted by the group
for the first time for the financial year beginning on or after 1 January 2015. They do not materially impact on the group results:
• Annual improvements 2011 - 2013
(b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2015 and not
early adopted
A number of new standards and amendments to standards and interpretations have been endorsed for annual periods beginning after
1 January 2015 (noted below), and have not been early adopted in preparing these consolidated financial statements. None of these
are expected to have a significant effect on the consolidated financial statements of the group.
• Annual improvements 2014 (2012-2014 cycle)
• Amendment to IFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation
• Amendments to IAS 16, 'Property, plant and equipment'
• Amendments to IAS 27, 'Separate financial statements' on the equity method
• Amendment to IAS 1, 'Presentation of financial statements' on the disclosure initiative
• Amendment to IFRS 10, 11 and 12 on transition guidance
• Amendments to IAS 32 and IFRS 7 Financial instruments on asset and liability offsetting
• IAS 28 (revised), 'Investments in associates and joint ventures'
• IFRS 13, 'Fair value measurement'
• Amendment to IAS 12,'Income taxes' on deferred tax
• Amendment to IAS 16, 'Property, plant and equipment' and IAS 38,'Intangible assets', on depreciation and amortisation
• Amendment to IAS 36, 'Impairment of assets' on recoverable amount disclosures.
A number of new standards and amendments to standards and interpretations have been issued but are not yet endorsed for annual
periods beginning after 1 January 2015 (noted below), and have not been adopted in preparing these consolidated financial
statements. None of these are expected to have a significant effect on the consolidated financial statements of the group.
IFRS 15 Revenue from contracts with customers (effective for annual periods beginning on or after 1 January 2018)
IFRS 9 Financial instruments (effective for annual periods beginning on or after 1 January 2018)
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 control. The Group controls an entity when the Group is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully 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.
Page !60
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Joint ventures
The group applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint
operations or joint ventures depending on the contractual rights and obligations each investor. We have assessed the nature of our joint
arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise
the group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When the group’s share of
losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long term interests that, in substance,
form part of the group’s net investment in the joint ventures), the group does not recognise further losses, unless it has incurred
obligations or made payments on behalf of the joint ventures.
Unrealised gains on transactions between the group and its joint ventures are eliminated to the extent of the group’s interest in the joint
ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the
group.
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.
Subsequent to the measurement period, any adjustments to the recorded fair value of contingent deferred consideration are taken
through the income statement as an exceptional income or expense.
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.
(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.
Page !61
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
(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 in-line with the expected revenue profile over the period during which the economic
benefits are expected to be received, which typically range between 3 and 8 years. The estimated remaining useful lives of
development costs are reviewed at least on an annual basis. Amortisation commences once the project is completed and revenues are
being generated.
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 8 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 7 years.
This includes customer contracts, the fair value of which has been evaluated using the multi period excess earnings method “MEEM”.
The MEEM model valuation was cross checked to the 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.
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
Short leasehold improvements
Plant and machinery
Fixtures and fittings
..................
.................................
.....................................
15 to 25 years
5 to 27 years
5 to 15 years
3 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).
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IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
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 and parent
company 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.
Provisions
Provisions are recognised when:
• the Group has a legal or constructive obligation as a result of a past event;
• it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. Where a leasehold
property, or part thereof, is vacant or sub-let under terms such that the rental income is insufficient to meet all outgoings, provision is
made for the anticipated future shortfall up to termination of the lease, or the termination payment, if smaller.
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 note 19.
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.
Page !63
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Revenue recognition
Revenue represents the amounts receivable for goods, services and intellectual property licenses 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, services or intellectual property 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 2012, where the consideration is being settled through agreed contractual price discounts.
Subsequent to the measurement period, any adjustments to the recorded fair value of contingent deferred consideration are taken
through the income statement within other income as an exceptional income or expense. The revenues of products sold 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 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.
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 financial statements, 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
financial statements.
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.
Exceptional items
Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of
the financial performance of the group. They are material items of income or expense that have been shown separately due to the
significance of their nature or amount. Details of the exceptional items are included in note 4.
Page !64
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
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 for fiscal year 2013 and before are recognised as a credit
within the group's tax charge. For subsequent years the R&D tax credits are under the RDEC scheme and are recognised with
operating profit.
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.
Investment in subsidiaries
Investments in subsidiaries are held at cost of investment less provision for impairment in the parent company financial statements.
Other equity investments
Other equity investments are held at cost less provision for impairment in both the parent company and group financial statements 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.
Page !65
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
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 tangible and 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, future
commercial benefits and expected useful economic life of the product or process. The carrying value for each project is assessed for
impairment on an on-going basis.
The key assumptions and judgements adopted in preparing the impairment review are set out in note 11.
(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.
(c) 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.
(d) Acquisition fair values
An assessment of the fair value of the purchase consideration and net assets acquired was undertaken for the acquisitions made
during 2012 and 2013. We have reassessed the fair value of the deferred contingent consideration in relation to the 2012 RFMD
acquisition. This resulted in an exceptional release of £0.8m (2014: £9.9m) to other income as a result of the re-assessment of the
forecast volumes. Further details are provided in note 4.
(e) 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.
The forecasts used to support deferred tax asset recognition are the same forecasts used in the impairment review and support partial
recognition of the available deferred tax assets.
(f) Onerous lease provision
A provision for onerous leases was made in the prior year. The provision assumes that the lease will be onerous for the next three and a
half years. Subsequent to this period we expect to be able to sublet the premises or negotiate to exit the lease. The full term of the
lease obligation is 6 years with the lease running until 2021.
(g) Adjustments to profit
The board provides an adjusted profit measure to provided additional information to aid an understanding of the group’s performance
as set out in note 4 we have detailed all of the items which are included within the adjustments to profit.
Page !66
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
3 - Segmental analysis
The board of directors considers that the wireless, photonics, infrared and CMOS++ markets are the group’s primary reporting
segments. The board of directors assesses the performance of these operating segments based on their adjusted operating profit.
Further details on the nature of the segments is provided in the strategic report.
Revenue
Wireless
Photonics
Infra Red
CMOS++
Total Segment Revenue
License income from sales to joint ventures
Total Revenue
Adjusted operating profit
Wireless
Photonics
Infra Red
CMOS++
Segment adjusted operating profit
Profit from license income from sales to joint ventures*
Adjusted operating profit
Gain on disposal of fixed assets
Non-cash accounting charges
Net reduction in contingent deferred consideration
Restructuring and reorganisation
Finance Costs
Profit before tax
2015
£’000
79,482
15,985
8,878
1,655
2014
£’000
89,110
12,485
9,276
1,140
106,000
112,011
8,024
-
114,024
112,011
7,147
4,320
1,181
(1,695)
10,953
8,024
18,977
5,187
(3,596)
779
(568)
(1,403)
19,376
15,827
1,833
1,144
(1,186)
17,618
-
17,618
-
(3,070)
9,903
(17,779)
(1,429)
5,243
* The profit arising from license income sales to joint ventures represents revenue of £15,310,000 offset by an elimination of unrealised
profit of £7,286,000 relating to our retained interest in the Compound Semiconductor Centre Limited joint venture.
Costs not directly attributable to a segment are allocated based on the proportion of revenue attributable to that segment.
Staff work for multiple segments, therefore it is not possible to allocate staff related expenses and the share based payment charge to
specific segments.
Finance costs are not allocated to the segments because treasury is managed centrally.
Measures of total assets and liabilities for each reportable segment are not reported to the chief operating decision maker and therefore
have not been disclosed.
Page !67
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
3 - Segmental analysis (continued)
In the years set out below, certain customers accounted for greater than 10% of the Group’s total revenues:
Customer 1
Customer 2
Segment
Wireless
Wireless
2015
£’000
2015
% revenue
2014
£’000
2014
% revenue
35,022
19,468
31%
17%
33,001
27,025
29%
24%
There are no customers in the photonics, Infra Red or CMOS++ segments that accounted for greater than 10% of the Group’s total
revenues.
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
Taiwan
UK
2015
£’000
69,851
69,745
106
16,589
169
3,415
1,137
9,540
2,328
27,584
949
4,665
19,905
2,065
2014
£’000
75,740
75,552
188
7,325
447
2,249
1,609
1,680
1,340
28,946
768
5,023
21,572
1,583
114,024
112,011
Property, plant and equipment
Intangible assets
2015
£’000
44,377
6,630
8,872
5,275
65,154
2014
£’000
45,944
6,762
7,555
6,327
66,588
2015
£’000
63,694
8,502
1,297
13,350
86,843
2014
£’000
59,226
8,646
1,155
13,052
82,079
Page !68
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
4 - Adjusted profit measures
The group’s results are reported after a number of imputed non-cash charges and non-recurring items. Therefore, we have provided
additional information to aid a better understanding of the group’s performance.
Gain on disposal of fixed assets
Non-cash accounting charges
Gain on release of contingent deferred consideration
Restructuring and reorganisation
Total before tax
Deferred tax on adjustments
Total after tax
2015
£’000
5,187
(3,596)
779
(568)
1,802
281
2,083
2014
£’000
-
(3,070)
9,903
(17,779)
(10,946)
(3,759)
(14,705)
As disclosed in note 27, in July 2015 the group established a joint venture with Cardiff University to develop and commercialise
compound semiconductor technologies in Europe. To establish the joint venture, IQE contributed equipment with a market value of
£12m, which was matched by a £12m cash contribution from Cardiff University. This created a non-cash exceptional gain of £4.8m in
IQE’s accounts reflecting the Group’s share of the difference between the book value and market value of the equipment contributed.
In addition, other unrelated disposals of fixed assets realised a net gain of £0.4m.
The non-cash accounting charges of £3.6m (2014 : £3.1m) reflect a charge for share based payments of £2.0m (2014 £1.5m), the
amortisation of acquired intangibles £1.2m (2014 £1.1m) and the unwind of the discounting of long term balances £0.4m (2014
£0.5m).
The Group generated a non-cash profit of £0.8m (2014 £9.9m) arising from a reduction in the estimated remaining deferred
consideration (settled via trade discount) in respect of a previous acquisition. This has been classified within other income and
expenses in the consolidated income statement.
The restructuring and reorganisation costs of £0.6m (2014: £17.8m) reflects some one-off redundancy and asset write downs
associated with the restructuring of the groups manufacturing operations.
The deferred tax credit of £0.3m (2014: £3.8m charge) reflects the net deferred tax impact associated with these adjustments.
Certain items noted above are accounting estimates based on judgements, accordingly, the actual amounts may differ from these
estimates. The adjustments above are classified £1.8m (2014: £5.6m) within gross margin, and £2.0m (2014: £3.2m) within sales
general & admin costs.
Adjusted gross margin
Reported gross margin
Adjusted sales, general and administrative expenses
Reported sales, general and administrative expenses
Adjusted operating profit
Reported operating profit
Adjusted profit before tax
Reported profit before tax
Adjusted profit after tax
Reported profit after tax
Page !69
2015
£’000
2014
£’000
32,439
30,652
(13,462)
(15,452)
18,977
21,166
17,574
19,376
18,066
20,149
31,552
25,996
(13,935)
(17,103)
17,618
7,167
16,189
5,243
16,701
1,996
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
4 - Adjusted profit measures (continued)
Earnings before interest, tax, depreciation and amortisation (EBITDA) has been calculated as follows:
Profit attributable to equity shareholders
Minority interest
Tax
Share based payments
Finance costs
Depreciation of tangible fixed assets
Amortisation of intangible fixed assets
(Profit) / loss on disposal of fixed assets
Provision for onerous lease*
Impairment of assets*
Gain on release of contingent deferred consideration*
Restructuring and re-organisation costs*
EBITDA
2015
£’000
19,864
285
(773)
2,001
1,790
6,192
5,040
(5,187)
-
453
(779)
115
29,001
2014
£’000
1,632
364
3,247
1,458
1,924
6,590
3,902
15
6,673
6,354
(9,903)
4,753
27,009
* Exceptional items impacting EBITDA include the following items: impairment of assets, provision for onerous lease, wireless business
unit re-organisation costs and the release of contingent deferred consideration.
5 - Operating profit
The operating profit is stated after charging/(crediting):
Depreciation of property, plant and equipment
Amortisation of non-current intangible assets
Services provided by auditors*
Operating lease rentals
Research and development
Exchange gains
Share based payments
Cost of raw materials consumed
Gain on disposal of fixed assets
Elimination of unrealised gains with joint ventures
Exceptional items**
2015
£’000
2014
£’000
6,192
5,040
141
3,030
138
(675)
2,001
45,338
(5,187)
7,286
(211)
6,590
3,902
147
3,209
698
(26)
1,458
43,741
15
-
7,877
*A schedule of services provided by the group’s auditors and related fees is disclosed in the Corporate Governance Report.
**Exceptional items include the following items: re-organisation costs, impairment of assets and the release of contingent deferred
consideration. Exceptional items in 2014 also included onerous lease provisions. Further details are provided in note 4.
Page !70
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
6 - 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
2015
£’000
23,314
2,664
956
2,001
28,935
2014
£’000
25,525
2,799
1,107
1,458
30,889
2015
Number
2014
Number
364
124
488
449
132
581
Directors’ emoluments and share option details are disclosed in the Remuneration Report on pages 45 to 46 in sections k to n. Key
management within the group comprises the executive and non-executive directors, the business unit leaders, and other staff who
report directly to the executive directors. Compensation to key management, including pensions of £164,000 (2014: £154,000), was
£3,581,000 (2014: £3,133,000) and the charge for share-based payments was £1,284,000 (2014: £703,000).
7 - Finance costs
Bank and other loans
Finance lease interest
Unwind of discount on long term balances
8 - Taxation
Current tax (charge)/credit
United Kingdom research and development tax credits receivable
Overseas adjustments in respect of prior years
Overseas taxes charges
Total current tax (charge)/credit
Deferred tax credit/(charge)
Total tax credit/(charge)
Page !71
2015
£’000
1,402
1
387
1,790
2015
£’000
-
-
(635)
(635)
1,408
773
2014
£’000
1,347
82
495
1,924
2014
£’000
1,569
-
(444)
1,125
(4,372)
(3,247)
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
8 - Taxation (continued)
Factors affecting total tax credit/(charge)
The tax credit assessed for the year is different from that resulting from applying the standard rate of corporation tax in the UK: 20.25%
(2014: 21.5%). The differences are explained below:
Profit on ordinary activities before taxation
Tax charge at 20.25% thereon (2014: 21.5%)
Effects of :
Expenses not deductible for tax purposes
Overseas tax rate differences
Recognition of tax losses
Tax losses utilised for which no deferred tax asset was recognised
Other deferred tax movements
Impact on deferred tax as a result of changes in tax rates
United Kingdom research and development tax credits receivable
Total tax credit/(charge) for the year
2015
£’000
19,376
(3,924)
(41)
(311)
1,774
3,268
242
(235)
-
773
2014
£’000
5,243
(1,127)
(41)
(5,584)
964
-
972
-
1,569
(3,247)
Finance (No.2) Act 2015, which was substantively enacted on 26 October 2015, included legislation to reduce the main rate of
corporation tax from 20% to 19% from 1 April 2017 with a further reduction to 18% from 1 April 2020. Accordingly, the closing UK
deferred tax asset/liability in the financial statements has been recognised on this basis.
Deferred tax is measured at the tax rates that are expected to apply in the relevant territory in the period when the asset is realised or
the liability is settled, based on tax rates and tax laws that have been substantively enacted at the balance sheet date.
The majority of the deferred tax assets arise in the United States, these are provided at the effective United States Federal and State tax
rates where appropriate.
Deferred tax asset
At 1 January
Deferred tax (charge)/credit recognised in the year
Deferred tax assets recognised on acquisition
Foreign exchange differences
At 31 December
Analysis of deferred tax
Accelerated capital allowances
Tax losses carried forward
Timing differences on Intangible assets
Other
At 31 December
Page !72
2015
£’000
12,332
1,408
-
470
2014
£’000
16,040
(4,372)
-
664
14,210
12,332
2015
£’000
(8,336)
26,661
(7,547)
3,432
14,210
2014
£’000
(7,361)
19,481
(6,124)
6,336
12,332
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
8 - Taxation (continued)
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through
future taxable profits from the same trade is probable.
The net amount not recognised is an asset of £10,808,000 (2014: £19,595,000). The unrecognised amounts relate to tax losses
carried forward. The asset would be recognised if sufficient profits from the same trade arise in future periods.
Total tax losses carried forward account for a potential deferred tax asset of £37,469,000 (2014: £39,076,000).
Company
There is an unrecognised deferred tax asset of £522,000 (2014: £585,000) which relates primarily to short term timing differences
arising on share option charges.
R&D Tax Credits
The Group recognised a credit of £537,000 (2014: £925,000) within operating profit in relation to claims made under the R&D
Expenditure Credit Scheme (RDEC).
9 - Dividends
No dividend has been paid or proposed in 2015 (2014: £nil).
10 - 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 the dilutive effect of ‘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. The adjustments are detailed in note 4.
Profit attributable to ordinary shareholders
Adjustments to profit after tax (note 4)
Adjusted profit attributable to ordinary shareholders
Weighted average number of ordinary shares
Dilutive share options
Adjusted weighted average number of ordinary shares
Adjusted basic earnings per share
Basic earnings per share
Adjusted diluted earnings per share
Diluted earnings per share
Page !73
2015
£’000
19,864
(2,083)
17,781
2014
£’000
1,632
14,705
16,337
2015
Number
662,633,162
21,247,935
683,881,097
2014
Number
650,836,462
25,116,813
675,953,275
2.68p
3.00p
2.60p
2.90p
2.51p
0.25p
2.42p
0.24p
Accumulated amortisation and impairment
11 - Intangible assets
The Group
Cost
At 1 January 2015
Additions
Foreign exchange
At 31 December 2015
At 1 January 2015
Charge for the year
Foreign exchange
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
The Group
Cost
At 1 January 2014
Additions
Disposals
Foreign exchange
At 31 December 2014
Accumulated amortisation and impairment
At 1 January 2014
Charge for the year
Charge for Impairment
Disposals
Foreign exchange
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
Goodwill
£’000
Patents
£’000
Development
costs
£’000
Software
£’000
Acquisition
intangibles*
£’000
Total
£’000
55,885
-
1,968
57,853
-
-
-
-
591
1,162
3
1,756
174
49
1
224
29,014
4,979
758
2,806
1,003
2
6,366
94,662
30
298
7,174
3,029
34,751
3,811
6,694
104,865
9,501
3,601
279
13,381
760
182
1
943
2,148
1,208
118
12,583
5,040
399
3,474
18,022
57,853
55,885
1,532
417
21,370
19,513
2,868
2,046
3,220
4,218
86,843
82,079
Goodwill
£’000
Patents
£’000
Development
costs
£’000
Software
£’000
Acquisition
intangibles*
£’000
Total
£’000
52,861
-
-
3,024
55,885
-
-
-
-
-
-
55,885
52,861
526
60
-
5
591
118
56
-
-
-
174
417
408
23,167
4,957
-
890
1,595
1,231
(25)
5
5,941
84,090
27
-
398
6,275
(25)
4,322
29,014
2,806
6,366
94,662
6,578
2,609
-
-
314
9,501
619
121
39
(25)
6
760
916
1,116
-
-
116
8,231
3,902
39
(25)
436
2,148
12,583
19,513
16,589
2,046
976
4,218
5,025
82,079
75,859
Page !74
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
11 - Intangible assets (continued)
The amortisation charge of: £5,040,000 (2014: £3,902,000) 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.
Impairment tests for goodwill
Goodwill is tested for impairment annually and whenever there is an indication of impairment at the level of the cash-generating unit
(CGU) or group of CGUs to which it is allocated. Multiple production facilities are included in a single CGU reflecting that production can
(and is) transferred between sites for different operating segments to suit capacity planning and operational efficiency. Given the
interdependency of facilities, goodwill is therefore tested for impairment by grouping operational sites into a CGU or CGUs based on
type of production. This gives rise to the following allocation of Goodwill:
Allocation of goodwill by CGU :
III/V Epitaxy
Substrates
Total Goodwill
2015
£’000
51,403
6,450
57,853
2014
£’000
49,694
6,161
55,885
The recoverable amount of the CGUs has been determined based on value in use calculations, using cash flow projections for a five
year period plus a terminal value. The Board approved budget is used for the first year of the forecast.
Key assumptions applied in the forecasts include:
• Margin erosion 1.5% pa (2014: 1% pa),
• Cost inflation 2% (2014: 3% pa),
• A long term growth rate of 2% (2014: n/a)
• A discount rate of 9% (2014: 11%)
Management believes it is appropriate to use the same discount rate for each CGU given that they have similar risk profiles and
common funding.
In respect of the III/V Epitaxy CGU, the forecast EBITDA compound growth rate is c.6% over the five year period. Driving this growth is
Photonics revenue growth of c.10.5% pa (2014: 10.5% pa) which is significantly lower than the 2015 Photonics revenue growth rate.
Also included is revenue into emerging markets growing to c.£23m after 5 years (2014: £10m after 5 years).
No impairment would arise if the EBITDA compound growth rate fell to zero over the same period. An impairment of the III/V Epitaxy
CGU goodwill would arise in the event that the discount rate was increased from 9% to 13%.
Page !75
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
11 - Intangible assets (continued)
The Company
Cost
At 1 January 2015
Additions
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Charge for the year
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
The Company
Cost
At 1 January 2014
Additions
Reclassification to intangibles
At 31 December 2014
Accumulated depreciation
At 1 January 2014
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Patents
£’000
Software
£’000
Total
£’000
-
1,073
1,073
-
-
-
1,073
-
332
36
368
-
-
-
368
332
332
1,109
1,441
-
-
-
1,441
332
Patents
£’000
Software
£’000
Total
£’000
-
-
-
-
-
-
-
-
-
-
316
16
332
-
-
-
332
-
-
316
16
332
-
-
-
332
-
Page !76
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
12 - Property, plant and equipment
a) The Group
Cost
At 1 January 2015
Additions
Disposals*
Foreign exchange
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Charge for the year
Disposals*
Foreign exchange
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
Cost
At 1 January 2014
Additions
Disposals
Foreign exchange
At 31 December 2014
Accumulated depreciation
At 1 January 2014
Charge for the year
Impairment charge for the year
Disposals
Foreign exchange
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Land and
buildings
£’000
Short
leasehold
improvements
£’000
Fixtures
and fittings
£’000
Plant and
machinery
£’000
7,680
27,953
3,816
-
-
133
7,813
3,059
189
-
22
123
(467)
933
298
(20)
72
28,542
4,166
13,739
1,196
(380)
286
2,834
251
-
59
3,270
14,841
3,144
4,543
4,621
13,701
14,214
1,022
982
147,426
5,710
(43,794)
3,322
112,664
100,655
4,556
(40,351)
1,916
66,776
45,888
46,771
Land and
buildings
£’000
Short
leasehold
improvements
£’000
Fixtures
and fittings
£’000
Plant and
machinery
£’000
Total
£’000
186,875
6,131
(44,281)
4,460
153,185
120,287
6,192
(40,731)
2,283
88,031
65,154
66,588
Total
£’000
7,796
2
(275)
157
7,680
3,121
187
-
(275)
26
3,059
4,621
4,675
26,604
3,650
138,898
176,948
57
(31)
1,323
27,953
11,836
1,140
353
(31)
441
82
-
84
3,030
(29)
5,527
3,171
(335)
7,091
3,816
147,426
186,875
2,458
274
24
-
78
87,693
105,108
4,989
4,540
(14)
3,447
6,590
4,917
(320)
3,992
13,739
2,834
100,655
120,287
14,214
14,768
982
1,192
46,771
51,205
66,588
71,840
During 2014 as part of the rationalisation and re-organisation programme, IQE provided facilities, equipment and IP on favourable terms
to the CSDC. As a consequence, IQE booked provisions of £4.9m for asset impairment relating to the transfer of tools to the CSDC.
The impairment provision wrote the assets down to their recoverable amount.
*As part of the ongoing standardisation and improvement of the group underlying accounting records, accumulated cost and
depreciation of £29.5m were eliminated in respect of fully depreciated assets no longer used within the business.
Page !77
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
12 - Property, plant and equipment (continued)
b) Capitalised finance leases
Plant and machinery includes the following amounts where the group is a lessee under a finance lease:
Cost
Accumulated Depreciation
Net book value
2015
£’000
2,856
(408)
2,448
2014
£’000
2,728
(216)
2,512
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.
c) The Company
Cost
At 1 January 2015
Additions
Reclassification to intangibles
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Charge for the year
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
Cost
At 1 January 2014
Additions
Reclassification to intangibles
At 31 December 2014
Accumulated depreciation
At 1 January 2014
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Page !78
Fixtures
and fittings
£’000
69
1
-
70
51
15
66
4
18
Fixtures
and fittings
£’000
78
7
(16)
69
35
16
51
18
43
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
13 - Investments
a) Company
Cost
At 1 January 2015
Additions
Disposal
Subsidiaries share based payments charge
At 31 December 2015
Provisions for impairment
At 1 January 2015
Disposal
Impairment charge
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
Cost
At 1 January 2014
Additions
Disposal
Subsidiaries share based payments charge
At 31 December 2014
Provisions for impairment
At 1 January 2014
Disposal
Impairment charge
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Investments in
subsidiaries
£’000
Other equity
investments
£’000
99,894
-
-
615
100,509
71,514
-
-
71,514
28,995
28,380
50
25
-
-
75
-
-
-
-
75
50
Investments in
subsidiaries
£’000
Other equity
investments
£’000
83,703
15,652
-
539
99,894
70,438
-
1,076
71,514
28,380
13,265
3,205
50
(3,205)
-
50
3,205
(3,205)
-
-
50
-
Total
£’000
99,944
25
-
615
100,584
71,514
-
-
71,514
29,070
28,430
Total
£’000
86,908
15,702
(3,205)
539
99,944
73,643
(3,205)
1,076
71,514
28,430
13,265
Details of the company’s subsidiaries are set out in note 26.
Investments are reviewed for impairment annually, where the net asset value is lower than the investment carrying value an impairment
charge is recognised in the income statement.
During 2014 impairment charges of £1,076,000 were recognised to the write down of the investment in subsidiaries to recoverable
amount.
Page !79
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
14 - Inventories
Raw materials and consumables
Work-in-progress and finished goods
2015
£’000
16,669
4,546
21,215
2014
£’000
13,177
5,099
18,276
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 £6,381,000 (2014: £5,937,000). £746,000 (2014: £1,339,000)
of inventories were written down during 2015 and an expense recognised in the income statement.
15 - Trade and other receivables
Current
Trade receivables
Amounts owed by group undertakings
Other receivables and prepayments
Non-current
Financial assets
2015
Group
£’000
12,666
-
10,384
23,050
2015
Group
£’000
8,000
2015
Company
£’000
2014
Group
£’000
2014
Company
£’000
-
12,809
77,258
453
77,711
2015
Company
£’000
-
-
11,654
24,463
2014
Group
£’000
-
-
81,224
382
81,606
2014
Company
£’000
-
As at 31 December 2015, 82% (2014: 88%) of trade receivables were within terms. Of the other trade receivables, 64% (2014: 93%)
were less than 30 days past due. An allowance has been made for estimated irrecoverable amounts from the sale of goods of
£204,000 (2014: £330,000). This allowance has been determined by reference to past default experience. Included in other
receivables is accrued income of £7,739,000 (2014: £8,806,000).
Our trade receivables are with established customers, we monitor customer D&B credit ratings and have had no material defaults in the
past. None of our receivables are with customers where we have had any history of default.
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.
Amounts owed by group undertakings are unsecured and repayable on demand. Interest is charged at a rate of 5% per annum (2014:
5% per annum).
Financial assets relate to £8,000,000 of Preferred ‘A’ shares (2014: £nil) issued by Compound Semiconductor Centre Limited (‘CSC’), a
joint venture between the Group and Cardiff University (see Note: 27 for further details. The preference shares carry the following rights:
• No voting rights
• Dividend equivalent to the HSBC Bank PLC base rate for the applicable period on the amount paid up, subject to CSC having
available profits.
• Repayable in proportion to the outstanding principle from surplus cash generated.
The carrying values of trade and other receivables also represent their estimated fair values.
Page !80
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
16 - Trade and other payables
Current
Trade payables
Amounts owed to group undertakings
Deferred consideration
Overseas tax payable
Other taxation and social security
Accruals and deferred income
Non-current
Deferred consideration
2015
Group
£’000
12,832
-
16,649
704
1,085
12,423
43,693
2015
Group
£’000
484
2015
Company
£’000
691
-
1,005
-
120
491
2014
Group
£’000
14,518
-
5,183
522
1,072
9,101
2,307
30,396
2014
Company
£’000
57
1,457
-
-
728
511
2,753
2015
Company
£’000
484
2014
Group
£’000
15,431
2014
Company
£’000
484
Within deferred consideration is £5.6m (2014: £10.7m) being the best estimate of the amount that will be settled through contractually
agreed price discounts over the next year (2014: two years). Long term contingent deferred consideration balances are discounted at
2.5%.
The fair value of the contingent deferred consideration has been re-assessed during the year resulting in a reduction of £0.8m (2014:
£9.9m). This has been credited to the consolidated income statement within other income and expenses. The exceptional income has
been excluded from our adjusted profit measure set out in note 4.
Amounts owed to group undertakings are unsecured and repayable on demand. Interest is charged at a rate of 5% per annum (2014:
5% per annum).
The carrying values of trade and other payables also represent their estimated fair values.
There are no foreign currency exchange contracts held at 31 December 2015 or 31 December 2014.
17 - Borrowings
The Group
Non-current borrowings:
Bank borrowings
Finance leases
Current borrowings:
Bank borrowings
Finance leases
2015
£’000
24,626
-
24,626
3,162
79
3,241
2014
£’000
22,002
113
22,115
13,867
853
14,720
Total borrowings
27,867
36,835
Page !81
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
17 - Borrowings (continued)
a) Bank borrowings
Bank borrowings fall due for repayment as follows:
Within one year
Between one and five years
After five years
For details of the Group’s bank borrowings see note 19.
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
2015
£’000
3,162
23,084
1,542
27,788
2014
£’000
13,867
20,398
1,604
35,869
2015
£’000
2014
£’000
80
-
80
(1)
79
2015
£’000
79
-
873
114
987
(21)
966
2014
£’000
853
113
966
79
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 £25,402,000 (2014 £32,473,000) which comprise mutli currency
acquisition and RCF facilities, and an overdraft of £866,000 (2014: £nil).
The Company
Non-current borrowings:
Bank borrowings
Current borrowings:
Bank overdraft
Bank borrowings
2015
£’000
22,722
22,722
866
2,680
3,546
2014
£’000
19,673
19,673
-
12,800
12,800
Total borrowings
26,268
32,473
Page !82
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
17 - Borrowings (continued)
Bank borrowings fall due for repayment as follows:
Within one year
Between one and five years
After five years
18 - Provisions for other liabilities and charges
As at 1 January
Charged to the income statement
Utilised during the year
Foreign exchange
As at 31 December
Current
Non-Current
Total Provisions for other liabilities and charges
2015
£’000
3,546
22,722
-
26,268
2015
£’000
5,485
116
(1,489)
(74)
4,038
2015
£’000
1,116
2,922
4,038
2014
£’000
12,800
19,673
-
32,473
2014
£’000
-
6,673
(1,206)
18
5,485
2014
£’000
1,551
3,934
5,485
During 2014, as part of the re-organisation and rationalisation of the Group’s facilities the Group is ceased activities at its Singapore
facility and established the Compound Semiconductor Development Centre. The provision above represents the onerous lease
obligation in respect of the Singapore property. This is expected to be utilised over the next three and a half years. The provision has
been discounted using a risk free rate of 2.5%.
19 - Financial instruments
Financial instruments by category
Trade and other receivables (excluding prepayments), preference share receivables and cash and cash equivalents are classified as
'loans and receivables'. Borrowings and trade and other payables are classified as 'other financial liabilities at amortised cost'. Both
categories are initially measured at fair value and subsequently held at amortised cost.
Derivatives (forward exchange contracts) are classified as 'derivatives used for hedging' and accounted for at fair value with gains and
losses taken to reserves through the consolidated statement of comprehensive income.
Financial risk and treasury policies
The Group's finance team maintains liquidity, manages relations with the Group’s bankers, identifies and manages foreign exchange risk
and provides a treasury service to the Group’s businesses. Treasury dealings such as investments, borrowings and foreign exchange
are conducted only to support underlying business transactions.
The Group has clearly defined policies for the management of foreign exchange rate risk. The Group finance team does not undertake
speculative foreign exchange dealings for which there is no underlying exposure. Exposures resulting from sales and purchases in
foreign currency are matched where possible and the net exposure may be hedged by the use of forward exchange contracts.
Page !83
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
19 - Financial instruments (continued)
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers and monies on deposit with financial institutions
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.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable as set out below. 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.
Carrying amount
Cash and Cash equivalents
Trade receivables
2015
Group
£’000
4,644
12,666
2015
Company
£’000
-
-
Amounts owed by group undertakings
-
77,258
Other receivables
Financial Assets (Preference share receivables)
7,739
8,000
33,049
-
-
77,258
2014
Group
£’000
5,584
12,809
-
8,806
-
27,199
2014
Company
£’000
2,065
-
81,224
-
83,289
Included in other receivables is accrued income of £7,739,000 (2014: £8,806,000).
The majority of the group’s revenues are derived from large multinational organisations and are with established customers. Therefore
the credit risk is considered to be small. We monitor customer D&B credit ratings and have had no material defaults in the past. None of
our receivables are with customers where we have had any history of default.
Not past due
Past due 0-30
Past due more than 30
Gross
Provision
Net
Gross
Provision
2015
£’000
2015
£’000
2015
£’000
2014
£’000
2014
£’000
Net
2014
£’000
10,033
1,823
1,014
12,870
-
-
204
204
10,033
10,929
-
10,929
1,823
810
2,056
154
12,666
13,139
176
154
330
1,880
-
12,809
An allowance has been made for estimated irrecoverable amounts from the sale of goods of £204,000 (2014: £330,000). This
allowance has been determined by reference to past default experience. The individually impaired receivables mainly relate to a number
of independent customers. A portion of these receivables is expected to be recovered.
The carrying values of trade and other receivables also represent their estimated fair values.
Trade receivables and accrued income are primarily denominated in US dollars, as are trade payables (note 16). 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 2015 a 1 cent movement in the US dollar to Sterling rate would impact the net value of
these instruments by £53,000 (2014: £47,000) (before the mitigating impact of cash flow hedges).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its funding to
ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group uses weekly cash flow forecasts to monitor cash requirements and to optimise its borrowing position.
Typically the Group ensures that it has sufficient borrowing facilities to meet foreseeable operational expenses. At the year end the group
had available facilities of £41.1m (2014: £44.8m).
Page !84
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
19 - Financial instruments (continued)
The following shows the contractual maturities of financial liabilities, including interest payments, where applicable and excluding the
impact of netting agreements and on an undiscounted basis:
Analysis of contractual cash flow maturities
31 December 2015
Trade and other payables
Deferred consideration
Secured bank loans
Finance leases
Analysis of contractual cash flow maturities
31 December 2014
Trade and other payables
Deferred consideration
Secured bank loans
Finance leases
Market risks
1 - Currency risk
(a) Cash flow risk
Carrying
amount
£’000
Contractual
cash flows
£’000
Less than
12 months
£’000
1-2
Years
£’000
29,798
11,539
27,788
79
29,798
11,539
30,881
80
29,798
11,055
3,956
80
2-5
Years
£’000
-
484
5+
Years
£’000
-
-
-
-
6,251
18,137
2,537
-
-
-
69,204
72,298
44,889
6,251
18,621
2,537
Carrying
amount £’000
Contractual
cash flows
£’000
Less than
12 months
£’000
1-2
Years
£’000
-
24,141
-
9,600
2-5
Years
£’000
-
484
5+
Years
£’000
-
-
14,852
15,893
5,334
2,476
869
118
-
-
24,141
9,860
35,869
966
24,141
10,084
38,555
987
70,836
73,767
39,862
25,611
5,818
2,476
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 2015 and 31 December 2014 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 £300,000 (2014: £200,000).
2 - 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. Historically the Group has not undertaken any hedging activity in this area however the board keeps this under regular
review. All foreign currency cash deposits are made at prevailing interest rates. The main element of interest rate risk concerns
borrowings.
The group’s bank borrowings consist of a series of variable and fixed rate term loans, a revolving credit facility and overdrafts. Bank
loans are secured against the assets of the group.
Page !85
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
19 - Financial instruments (continued)
2 - Interest rate risk (continued)
The variable rate US dollar term loans, which had a principal outstanding at 31 December 2015 of £0.3m (2014: £1.3m), and bear
interest of between 2.0% to 2.95% over LIBOR. These loans are repayable by monthly instalment with remaining terms of less than one
year.
The fixed rate US dollar term loans, which had a principal outstanding at 31 December 2015 of £2.1m (2014: £2.1m), and bear interest
of 5% until 2017 and is variable thereafter. These loans are repayable by monthly instalment with remaining terms of up to 20 years.
The US Dollar acquisition facility, which had a principal outstanding at 31 December 2015 of £8.1m (2014: £20.2 million), bears interest
of between 2.5% to 2.95% over LIBOR. This loan is repayable by quarterly instalments with a remaining term of 2 years.
The UK Pound revolving credit facility is a multi-currency facility of up to £30 million, committed until 2018. It bears interest of between
1.75% to 1.95% over LIBOR. The balance drawn at 31 December 2015 was £17.6m (2014: £12.3m).
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 2015 was 8% (2014: 8%).
Floating rate liabilities are primarily indexed to LIBOR. The group did not enter into any interest rate swap instruments during 2015. This
remains under regular review.
As a guide to the sensitivity of the group’s results to movements in interest rates, a 50 basis point (0.5%) movement in interest rates
would have impacted the 2015 annual interest charge by approximately £170,000 (2014: £170,000).
The carrying value of loans approximates to their fair value based on the net present value of future cash flows.
Capital risk management
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 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 year is shown in the Five Year
Financial Summary.
The group defines total capital as equity in the consolidated balance sheet plus net debt or less net funds plus deferred consideration
(note 16). Total capital at 31 December 2015 was £187,390,000 (2014: £173,039,000).
Consistent with others in the industry, the group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt
plus deferred consideration divided by total capital. At 31 December 2015 the gearing ratio was 22% (2014: 30%).
All covenants in relation to the group’s borrowing facilities have been complied with during the year.
Fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Cash and Cash equivalents
Trade receivables
Other receivables – (accrued income)
Financial Assets (Preference share receivables)
Trade and other payables
Deferred consideration
Secured bank loans
Finance leases
2015
Carrying amount
£’000
2015
Fair value
£’000
2014
Carrying amount
£’000
2014
Fair value
£’000
4,644
12,668
7,739
8,000
(29,798)
(11,539)
(27,788)
(79)
4,644
12,668
7,739
8,000
(29,798)
(11,539)
(28,136)
(79)
(36,155)
(36,503)
5,584
12,809
8,806
-
(29,324)
(9,860)
(35,869)
(966)
(48,820)
5,584
12,809
8,806
-
(29,324)
(9,860)
(36,104)
(966)
(49,055)
Page !86
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
19 - Financial instruments (continued)
Basis for determining fair value
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments reflected
in the table above.
Secured loans
As the loans are floating rate borrowings, amortised cost is deemed to reflect fair value excluding unamortised transaction fees.
Trade and other receivables/payables
As receivables/payables have a remaining life of less than one year, the notional amount is deemed to reflect the fair value.
Financial Assets (Preference share receivables)
As the preference shares receivables are floating rate receivables, amortised cost is deemed to reflect fair value.
20 - Share capital
Group and Company
Allotted, called up and fully paid
Ordinary shares of 1p each
2015
Number
of shares
2015
£’000
2014
Number
of shares
2014
£’000
665,533,170
6,655
660,327,767
6,603
The movement in the number of ordinary shares during the year was:
At 1 January
Employee share schemes
At 31 December
2015
Number
2014
Number
660,327,767
647,513,661
5,205,403
12,814,106
665,533,170
660,327,767
5,205,403 ordinary shares (2014: 12,814,106 Ordinary shares) were issued during the year as follows:
Employee share schemes
2015
Number
of shares
5,205,403
5,205,403
2015
Consideration
Nil to 15.66p
2014
Number
of shares
12,814,106
12,814,106
2014
Consideration
Nil to 19.97p
The share premium arising from the consideration received of £544,000 (2014: £278,000) was £492,000 (2014: £150,000).
Page !87
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
21 - Share based payments
The total amount charged to the income statement in 2015 in respect of share based payments was £2,001,000 (2014: £1,458,000).
Included within the share based payments charge is a £1,186,000 (2014: £848,000) charge relating to the Company’s Long Term
Incentive Plan.
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.
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
2015
22.46
12.49
3
10
3
53%
1.25%
0%
2014
17.12
12.94
3
10
3
61%
1.25%
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.
Non-market 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 2015 was £33,000 (2014: £342,000).
The movements on share options during the year were as follows:
At 1 January
Granted
Exercised
Cancelled/lapsed
At 31 December
2015
Number
of options
2015
Average exercise
price (pence)
2014
Number
of options
2014
Average exercise
price (pence)
50,536,520
540,000
(4,354,287)
(1,190,135)
45,532,098
13.12
20.50
12.49
18.19
13.14
56,152,601
7,095,762
(11,282,603)
(1,429,240)
50,536,520
11.24
12.94
2.87
19.17
13.12
Page !88
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
21 - Share based payments (continued)
The weighted average share price at the time of the options exercised during 2015 was 21.72p (2014: 21.04p).
As at 31 December 2015, the total number of options held by employees was 45,532,098 (2014: 50,536,520) as follows:
Option price pence/share
Option period ending
2015
Number of options
2014
Number of options
6.87p - 10.25p
10.40p - 19.42p
13.58p - 19.42p
16.10p - 16.10p
3.65p - 17.07p
0.00p – 45.58p
9.15p – 50.25p
0.00p – 28.17p
0.00p – 27.75p
0.00p – 23.83p
18.42p – 25.17p
At 31 December
31 December 2015
31 December 2016
31 December 2017
31 December 2018
31 December 2019
31 December 2020
31 December 2021
31 December 2022
31 December 2023
31 December 2024
31 December 2025
-
1,698,091
4,024,597
179,306
5,366,327
1,398,748
5,059,830
5,322,392
15,611,687
6,357,106
514,014
45,532,098
558,173
1,453,888
4,647,872
194,306
6,614,693
1,602,277
5,675,400
5,367,392
16,939,534
7,482,985
-
50,536,520
22 - 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 loss for the financial year amounted to £119,000 (2014: Loss £4,964,000).
Page !89
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
23 - Cash generated from operations
The Group
Profit before tax
Finance costs
Depreciation of property, plant and equipment
Amortisation of intangible assets
(Profit) / loss on disposal of fixed assets
Non cash element of joint venture transactions
Impairment of assets
Onerous lease provisions
Gain on release of contingent deferred consideration
Contingent deferred consideration (settled through contractual discounts)
Share based payments
Cash inflow from operations before changes in working capital
(Increase) in inventories
Decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Cash inflow from operations
The Company
Loss before tax
Finance costs
Finance income
Foreign exchange
Impairment of investments
Depreciation
Share based payments
Cash outflow from operations before changes in working capital
Decrease in trade and other receivables
Increase in trade and other payables
Cash inflow from operations
Page !90
2015
£’000
19,376
1,790
6,192
5,040
(5,187)
(714)
453
-
(779)
(4,837)
2,001
23,335
(2,813)
2,739
(2,290)
20,971
2015
£’000
(119)
1,088
(4,230)
1,614
-
15
1,387
(245)
8,126
(1,451)
6,430
2014
£’000
5,243
1,924
6,590
3,902
15
-
6,354
6,673
(9,903)
(7,981)
1,458
14,275
(792)
760
618
14,861
2014
£’000
(5,044)
1,092
(3,758)
2,238
1,076
16
919
(3,461)
5,927
1,686
4,152
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
24 - Reconciliation of net cash flow to movement in net debt
Increase in cash in the year
Increase in borrowings
Repayment of borrowings
Repayment of leases
Net movement resulting from cash flows
Net debt at 1 January
Net movement resulting from cash flows
Non-cash movements (note 25)
Net debt at 31 December
25 - Analysis of net debt
Bank borrowings due after one year
Bank borrowings due within one year
Finance leases due after one year
Finance leases due within one year
Total borrowings
Cash and cash equivalents
Net debt
2015
£’000
(1,109)
(4,349)
14,191
918
9,651
(31,251)
9,651
(1,623)
(23,223)
2014
£’000
2,168
(1,305)
3,867
813
5,543
(34,351)
5,543
(2,443)
(31,251)
At 1
January
2015
£’000
(22,002)
(13,867)
(113)
(853)
(36,835)
5,584
(31,251)
Cash
flow
£’000
(4,349)
14,191
-
918
10,760
(1,109)
9,651
Other
non-cash
movements
£’000
At 31
December
2015
£’000
1,725
(3,486)
113
(144)
(1,792)
169
(1,623)
(24,626)
(3,162)
-
(79)
(27,867)
4,644
(23,223)
Cash and cash equivalents at 31 December 2015 comprised balances held in instant access bank accounts and other short term
deposits with a maturity of less than 3 months.
Non-cash movements include foreign exchange movements on US dollar denominated borrowings.
Page !91
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
26 - Subsidiary undertakings
Name of company
Class of capital
Proportion of
shares held
Activity
Country of
incorporation
IQE (Europe) Limited
Ordinary shares of £1
100%*
IQE Inc
IQE KC LLC
IQE Taiwan ROC
IQE RF LLC
IQE Silicon Compounds
Limited
MBE Technology Pte Ltd
Common stock of
$0.001
Limited liability
company
Ordinary shares of
NT$10
Limited liability
company
100%*
100%
90%*
100%*
Manufacture of advanced
semiconductor materials
Manufacture of advanced
semiconductor materials
Manufacture of advanced
semiconductor materials
Manufacture of advanced
semiconductor materials
Manufacture of advanced
semiconductor materials
UK
USA
USA
Taiwan
USA
UK
Ordinary shares of £1
100%
Manufacture of silicon epitaxy
Preferred shares of S$1
Ordinary shares of S$1
100%
100%
Manufacture of advanced
semiconductor materials
Singapore
Wafer Technology Limited
Ordinary shares of £1
100%*
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 and ultra high purity
materials
EPI Holding Limited
Ordinary shares of £1
100%
Dormant holding company
KTC Wireless LLC
IQE USA Inc
IQE Solar LLC
IQE Properties Inc
Wafer Technology International
Limited
* Indirect holdings
Limited liability
company
Limited liability
company
Limited liability
company
Limited liability
company
100%
Dormant holding company
100%
Dormant holding company
100%*
Dormant company
100%*
Property holding company
Ordinary shares of £1
100%
Dormant holding company
UK
UK
USA
UK
USA
USA
USA
USA
UK
The proportion of voting rights of subsidiaries held by the group is the same as the proportion of shares held.
All UK subsidiaries are exempt from the requirements to file audited financial statements by virtue of section 479A of the Companies
Act 2006. In adopting the exemption IQE plc has provided statutory guarantee to these subsidiaries in accordance with section 479C
of the Companies Act 2006.
Page !92
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
27 - Joint ventures
The group holds investments in two joint ventures as follows:
Name of company
Class of capital
Proportion of
shares held
Activity
Compound Semiconductor
Centre Limited.
Common stock of £1 par
value
50%*
CSDC Private Limited.
Common stock of $1 par
value
51%*
* Indirect holdings
Research, development and
Manufacture of semiconductor
materials
Research, development and
Manufacture of semiconductor
materials
Country of
incorporation
UK
Singapore
On 23 March 2015 the group entered into a joint venture agreement with WIN Semiconductors Corp and Nangyang Technological
University to create the Compound Semiconductor Development Centre (“CSDC”) in Singapore. The CSDC is a centre of excellence in
Asia for the development and commercialisation of advanced semiconductor products. The shareholder agreement establishes that
this new entity is jointly controlled by the shareholders who have an equal share of the voting rights.
On 9 July 2015 the group entered into a joint venture agreement with Cardiff University to create the Compound Semiconductor Centre
(“CSC”) in the United Kingdom. The CSC is a centre of excellence in Europe for the development and commercialisation of advanced
semiconductor products. The shareholder agreement establishes that this new entity is jointly controlled by the shareholders who have
an equal share of the voting rights.
All of the above Joint ventures are accounted for using the equity method in these consolidated financial statements as set out in the
groups accounting policies note 1. All of the Joint ventures financial year end is the 31 December 2015 which is co-terminus with the
Group and has been used in preparing these Group accounts. No dividends have been received from the Joint ventures in the period.
We enclose below, summarised financial information for these joint ventures for the reporting period:
(a) Summary information for Compound Semiconductor Centre Limited (“CSC Ltd”)
Summary income statement
Revenue
Loss from continuing operations
Loss for the period
Total comprehensive expense for the period
Summary balance sheet
Non-current assets
Current assets
Current Liabilities
Non-current Liabilities
Equity attributable to Joint Venturers
Carrying value of equity interest in CSC Ltd
Net assets of CSC Ltd
Proportion of the Groups ownership interest
Groups share of net assets
Elimination of unrealised gains on transactions with CSC Ltd
Cumulative unrecognised losses
Carrying amount of the Groups interest in the JV
Page !93
2015
£’000
1,521
(954)
(954)
(954)
2015
£’000
33,310
5,168
(666)
(14,766)
23,046
2015
£’000
23,046
50%
11,523
(12,000)
477
-
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
27 - Joint ventures (continued)
(a) Summary information for CSC Ltd (continued)
Summary of cumulative unrecognised losses
Unrecognised losses brought forward
Unrecognised unrealised gains on transactions with CSC Ltd
Unrecognised losses in the year
Cumulative unrecognised losses carried forward
(b) Summary information for CSDC Private Limited
Summary income statement
Revenue
Loss from continuing operations
Loss for the period
Total comprehensive expense for the period
Summary balance sheet
Non-current assets
Current assets
Current Liabilities
Non-current Liabilities
Deficit attributable to Joint venturers
Carrying value of equity interest CSDC Private Limited
Net liabilities of CSDC Private Limited
Proportion of the Groups ownership interest
Groups share of net assets
Cumulative unrecognised losses
Carrying amount of the Groups interest in the JV
Summary of cumulative unrecognised losses
Cumulative unrecognised losses brought forward
Unrecognised losses in the year
Cumulative unrecognised losses carried forward
Page !94
2015
£’000
-
(249)
(477)
(726)
2015
SG$’000
12,208
(1,820)
(1,897)
(1,897)
2015
SG$’000
-
4,445
(3,834)
(2,508)
(1,897)
2015
SG$’000
(1,897)
51%
(967)
967
-
2015
SG$’000
-
(967)
(967)
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
28 - Related party transactions
The group incurred professional fees and expenses during the year of £125,000 (2014: £125,000) payable to Horton Corporate Finance
and £45,000 (2014: £38,000) payable to Fishstone Limited. Dr G H H Ainsworth, who is a director of IQE Plc, is a managing partner of
Horton Corporate Finance. S J Gibson, who is a director of IQE Plc, is also a director of Fishstone Limited. An amount of £63,500
(2014: £43,000) was outstanding to these parties at the year-end.
During the year the group recognised Revenue of £207,000 (2014: £145,000) with Seren Photonics Limited. Dr G H H Ainsworth is a
Director of IQE plc and Seren Photonics Limited. As at the 31 December 2015 £nil (2014: £148,000) was receivable from Seren
Photonics Limited. During 2015 IQE provided loans to Seren Photonics Limited of £25,000 (2014: £nil). During 2014, IQE made a
£50,000 investment in Seren Photonics Limited during the year in return for 69 “B” ordinary shares.
During the year the group recognised Revenue of £240,000 (2014: £nil) and also made purchases of £5,860,000 (2014: £nil) with CSDC
Private Limited a joint venture of the Group. An amount of £457,000 (2014:£nil) was owed to CSDC Private Limited at year end.
During the year the group recognised revenue of £7,784,000 (2014: £nil) which is net of an elimination of unrealised profit of £7,286,000
(2014: £nil). The group also made purchases of £1,521,000 (2014:£nil) and recharged other costs of £145,832 (2014: £nil) with
Compound Semiconductor Centre Limited (‘CSC’) a joint venture of the Group. Transactions relating to the formation of the CSC are
disclosed further in note 4. An amount of £728,156 (2014:£nil) was owed to the CSC at year end. In the groups year end balance sheet
there are receivables of £8,000,000 (2014: £nil) relating to Preferred ‘A’ Shares held in CSC and a shareholder loan of £115,000 (2014:
£nil).
29 - Operating lease commitments
The group was committed at 31 December 2015 and 31 December 2014 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
30 - Commitments
The group had capital commitments at 31 December 2015 of £747,000 (2014:£nil).
2015
£’000
2,082
6,519
11,378
19,979
2014
£’000
3,174
12,099
5,985
21,258
Page !95
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
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 Non-Executive Director)
Mr P J Rasmussen BSc, ACA (Finance Director and Company Secretary)
Dr H R Williams BSc, Ph.D, CEng, MIMechE, MCIBSE (Operations Director)
Registered office
Pascal Close, Cardiff, United Kingdom, 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
Canaccord Genuity Limited
88 Wood Street, London, EC2V 7QR
Joint brokers
Peel Hunt LLP
Moor House, 120 London Wall, London EC2Y 5ET
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
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PHOTONIC APPLICATIONS:
Company No: 3745726
IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
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IQE PLC | REPORT AND ANNUAL ACCOUNTS 2015
Company No: 3745726
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