Where
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Annual Report and Financial Statements 2021
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What sets us apart
At the core of technology
Innovation starts at IQE.
We create solutions
that help our customers
advance the world.
www.iqep.com
IQE plc
Annual Report and Financial Statements 2021
Page 4
Our value chain
Essential technology
partner
Page 14
Americo Lemos
Meet IQE’s new CEO
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£154m
Revenue
£13m
EBITDA
£19m
Adjusted EBITDA
£15m
Capital expenditure costs
£(20)m
Operating loss
£(6)m
Adjusted operating loss
£(6)m
Net debt
The nature and description of annual
performance measures are included in
Note 5 on Page 114.
Contents
Strategic Report
1 Highlights
2 At a glance
4 Our value chain
6 Our global advantage
8 What sets us apart
10 Chairman’s Statement
12 2021 review
14 CEO’s Statement
16 Our business model
18 Our strategy
20 Market overview
22 Technology roadmap
24 Responsible business
38 Stakeholder engagement
40 Risk management
45 Viability statement
46 Financial review
Corporate Governance
48 Board of Directors
50 Chairman’s Governance Overview
52 2021 Board Activities
54 Audit and Risk Committee Report
58 Nominations Committee Report
60 Remuneration Committee Report
66 Directors’ Remuneration Report
74 Directors’ Report
76 Statement of Directors’ responsibilities
Financial Statements
77 Auditor’s Report
86 Financial Statements
145 Glossary
147 Investor information
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Leading innovation from within
Who we are
IQE is the leading supplier of compound semiconductor wafer products and
advanced material solutions to the global semiconductor industry. IQE is essential to
technology growth markets, as the only compound semiconductor epitaxy foundry
with a global footprint and proven ability to manufacture at scale.
Our strategy
Our delivery
To deliver the best advanced semiconductor materials
solutions to our customers through technology
leadership, value engineering and production
excellence; to provide our employees with a safe,
stimulating and rewarding work environment; to
partner with our suppliers to form mutually beneficial
relationships; and to provide all our stakeholders with
a highly rewarding investment.
Read more on page
on page 18
In order to rise to the challenges demanded by
our customers and markets, IQE has established
a strong leadership position through the creation
of the broadest portfolio of materials IP in the
industry. We have developed a reputation for
excellence and reliability through technology
leadership and proven mass market delivery. Our
close collaboration with our customers ensures
that our processes are highly integrated and
embedded within our supply chains.
For a terminology guide please see
our glossary
on page 145
Our key products
Wireless
Photonics
Substrates
Our Wireless business offers the
industry’s broadest range of RF epitaxial
wafer products that enable wireless
connectivity, including in consumer
mobile handsets, connected devices, 5G
network infrastructure, WiFi 6, Bluetooth
and satellite communications. Our
wireless products include GaAs, GaN, and
InP-based technologies, as well as Si and
Ge-based epitaxial wafer structures.
Read our Wireless review
on page 13
IQE’s Photonics epitaxial wafer products
can be found in consumer, commercial and
industrial applications. Our key Photonics
products include Vertical Cavity Surface
Emitting Lasers (VCSELs) which are a key
3D sensing technology enabling facial
recognition, gesture control, LiDAR and other
advanced sensing applications, InP laser
and detector wafers which power today’s
high speed, 5G telecommunication and
datacommunication fibre-optic networks,
GaN and GaAs for multicolour uLED displays,
and an industry leading range of GaSb and
InP materials which enable high definition
infrared imaging and sensing in security,
health monitoring and environmental
applications.
Read our Photonics review
on page 13
Compound semiconductor substrates are
the base material from which all Photonics
and Wireless devices are fabricated through
epitaxy processes. We are industry pioneers
in substrate technology and offer an
unrivalled range of materials and product
forms. Our GaAs, InP, GaSb, InSb and InAs
product range allows us to serve a broad
and diverse range of device types and end
markets, and positions IQE at the forefront of
new product technologies which are made
possible only by the substrate materials we
provide.
Read IQE in the value chain
on page 4
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IQE plc
Annual Report and Financial Statements 2021
Our international reach
Europe
• Cardiff
• Newport
• Milton Keynes
North America
Asia
• Massachusetts
• North Carolina
• Pennsylvania
• Washington
• Taiwan
• Singapore
We are focused on consolidating our operations into strategic sites for
business optimisation. Following the closure of our Singapore site in 2022,
IQE will transfer the expertise, IP and assets from Singapore to our North
Carolina and Taiwan sites. In 2021 we invested in eight new or refurbished
tools in Taiwan to support future growth.
Our business
Wireless
54%
Photonics
44%
CMOS ++
2%
Read more
on page 12
Read more
on page 13
Europe
41%
Americas
35%
Asia
24%
Read more
on page 24
Gallium
Arsenide
(GaAs)
80%
Gallium
Nitride
(GaN)
20%
VCSEL
40%
Infrared
35%
Other
25%
Read more
on page 13
Europe
9%
Americas
65%
Asia
26%
Read more
on page 113
Continents of operation
3
We are the only global epitaxy player
who can manufacture at scale.
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Revenue by segmentationWireless segmentationPhotonics segmentationNumber of employees685We have a highly-skilled workforce across three continents.Revenue by geographyEmployees by locationStrategic ReportWhere innovation starts i
semiconductor supply chain
n IQE is a critical supplier in the compound
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Our manufacturing
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Where innovation
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What is epitaxy
Epitaxy Process
Substrate
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IQE manufactures compound
semiconductor wafers or
“epiwafers” using epitaxy. IQE
designs its epitaxy processes to
produce best-in-class materials that
enable today’s technology products.
Epitaxy is the technically challenging
process of depositing high quality,
crystalline layers on a substrate.
By specifically choosing the
composition and sequence of the
layers in epitaxial growth, the optical
and electrical properties of the
epiwafer are able to be tuned. We
grow our wafer layers in a specific
atomic order depending on the
desired performance qualities of
the wafer, as requested by our
customers. An epiwafer can include
hundreds of individual layers, each
of which may be as thin as two or
three atoms.
Our epiwafers are then processed
by our customers to produce the
“chips” that are found in virtually
all of today’s technology devices.
Substrates are the base materials
from which all Photonics and Wireless
devices are fabricated. A substrate is
used as the platform upon which we
grow our epiwafers and is made out of
a variety of materials depending on its
intended use. We either manufacture
or purchase a substrate, depending on
customer requirements.
To make our epiwafers we deposit
up to 400 layers of compound
semiconductor material onto
a substrate using one of our
highly specialised reactors. This
is an incredibly difficult process
and requires high specification
cleanrooms, sophisticated
production tools and high levels of
intellectual property.
It starts with a
substrate
Reactor
Compound
semiconductor
substrate
Our IP
IQE’s intellectual property and know-
how is rooted in over thirty years’
experience in the design of advanced
epitaxial processes for epiwafer
manufacturing.
We have unparalleled knowledge of
the materials and processes required
to create atomic structures which
deliver a wide range of electronic
and optoelectronic properties. The
quality and yields we achieve for our
customers are unrivalled and it is our
strong IP that truly sets us apart.
Read more about our IP portfolio
on page 32
Layers deposited
onto wafer
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IQE plc
Annual Report and Financial Statements 2021
Chip makers
Device manufacturers
Enabling technology
3
4
5
We sell our epiwafers down the
supply chain to chip makers, who
process our wafers to fabricate
devices that are subsequently
diced into chips. One wafer can
produce ten of thousands of
chips, depending on the wafer
size and application.
Chips are ultimately packaged
into modules or devices that are
integrated into end systems by
device OEMs, who sell into various
end markets.
The end-market products we
enable are at the forefront of
technological advancement.
IQE’s epiwafers will be at the
core of powering future mega
trends.
Chip
Wafer
• Smart mobile devices
• Communications
infrastructure
• Automotive
• Aerospace & Security
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Compound semiconductors
are everywhere
Compound semiconductors underpin a vast range of today’s technology
products. Their ability to operate at high frequencies, withstand high
temperatures, and emit and detect light, make them an essential choice
across key end markets.
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Connect
Power
At the core
of our daily
lives
Display
Sense
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Annual Report and Financial Statements 2021
IQE is a key strategic asset in the
global technology supply chain
We are the world’s only outsourced compound semiconductor
epitaxy foundry with a global footprint and proven ability to
manufacture at scale.
Consumer
mobile
Communications
Infrastructure &
Data Centre
Automotive
Aerospace &
Security
Energy,
Industry &
Environment
Mobile handsets
• Front end modules
• 3D Sensing
• Facial Recognition
• Time of Flight
• World facing applications
• High resolution displays
Wearables
• Healthcare monitors
• Augmented and virtual
reality
Wireless
connectivity
• Base station infrastructure
• 4G, 5G, 6G
• mmWave, mMIMO
• WiFi 6
High-speed,
long-haul optical
networks
Data centre optical
links for cloud
applications
Drive train
• Efficient power switching
LiDAR
• High power, long
wavelength emitters
• Highly sensitive detectors
µLED displays
Radar & satellite
communications
systems
Thermal imaging
Defence systems
Lasers for cutting
Sensing for smart
factories
HV switches for
grid applications
UV sterilisation
Environmental
sensing
For more information see iqep.com/products/
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IQE is the leading manufacturer of compound
semiconductor wafers – a market set to expand
due to large-scale technology trends.
We operate at the forefront
of technology
Read our value chain
on page 4
With over thirty years’ of experience and a deep commitment to research
and development, our technologies are world-class. We are constantly
innovating and supplementing our core capabilities with new products
and systems. As a materials solutions provider, IQE is embedded within
supply chains for a broad range of technology products. We work closely
with our immediate customers, the chip-makers, and their customers, the
original equipment manufacturers, to develop solutions with their required
performance and quality characteristics.
Macro trends will drive
demand for IQE’s advanced
materials
Read our market overview
on page 20
The proliferation of the latest communications standards, including 5G and
WiFi 6, is revolutionising connectivity. IQE’s technology is at the heart of
this transformation, with products essential to both handset/device and
communications infrastructure. Connected devices are becoming ever more
present in our lives and as connectivity transforms into true high-speed, high-
capacity and low-latency networks, the possibilities for device connection,
automation, machine learning, augmented reality and the metaverse
increase. IQE’s material solutions will power a multitude of advanced
applications from sensors to wearables and displays.
IQE’s global manufacturing
footprint is a strategic
differentiator
Read about our international reach
on page 3
IQE innovates and manufactures on three continents. Our state-of-the-art
facilities utilise the broadest range of technology platforms in our markets.
Our extensive customer qualifications mean we are deeply embedded within
our customers’ supply chains and we offer resilience in supply security and
production flexibility through these multi-site qualifications. Our unique
international reach also means we are well-positioned to serve a broad
customer base and adapt to changes in global technology markets, as well as
enabling us to access global talent pools.
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IQE plc
Annual Report and Financial Statements 2021
5G and WiFi 6 are revolutionising
connectivity. IoT and the Metaverse
will leverage this connectivity to
revolutionise the way we live and
work. As these trends develop,
demand for the unique performance
characteristics of compound
semiconductors will expand
significantly.”
Tim Pullen
Chief Financial Officer
We have an unrivalled
IP product portfolio
Read about our Intellectual Property
on page 32
Our people are experts
Read about Our People
on page 24
Our Intellectual Property (IP) portfolio encompasses a wide range of products
born out of three decades of experience. We generate IP in each of our manufacturing
facilities around the world, contributing to our broad market access. Our IP
portfolio covers patented technologies, material systems and processes, as well
as know-how and experience which is kept confidential. Our ability to provide
our customers with multiple IP-protected material solutions enables them to
bring world-leading products to market.
From our highly-experienced Board and executive management team, to our
technical and operational staff, the skill and experience of our people sets us
apart. IQE is a home for the best and brightest talent in the world of advanced
materials and the breadth and depth of the expertise of our workforce is unmatched.
We nurture our talented people through both training and extensive on-the-job development,
and working for IQE provides an exciting and stimulating global career
path for people with a diverse range of skills.
IQE is uniquely placed
in a growing market
Read our Business Model
on page 16
IQE is the world’s leading scaled epitaxy provider with a host of competitive
differentiators. We deliver world-leading quality, service, products and value.
IQE produces the best quality and highest yielding wafers which in-turn generates
superior unit economics for our customers. We aim to be the first choice supplier
for all of our customers and as the markets for our technologies expand, our
strategy will ensure we remain number one.
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Dear shareholder,
It is a great privilege to be able share my thoughts on 2021
with you, a year which was clearly challenging for many of us.
For IQE, it was one in which we faced a number of headwinds
but nonetheless made some significant progress.
Most notably, at the end of 2020 we announced we were
looking to appoint a new CEO to take over from Dr Drew
Nelson after his three decades with the business. Working
with the Board, I oversaw a rigorous international search
process to secure the ideal candidate to lead the business into
its next stage. We were delighted with the volume and calibre
of candidates and their enthusiasm to be a part of IQE.
Despite a number of hurdles, we were extremely pleased
to announce Americo Lemos as the successful candidate
in November, and, while the duration of the search was
lengthened due to Covid travel restrictions and the senior-
level nature of the appointment, I am confident that we have
found the right fit. Americo is a highly respected industry
expert with significant knowledge and experience of the
sector; from chip design to fabless to foundry and in many
of the world’s leading global technology companies. In
addition to his industry expertise, he has cultivated powerful
relationships and networks that will be pivotal in the evolution
of IQE over the next few years and further cementing its
position in the compound semiconductor ecosystem.
This year has been unlike any other, with me stepping in
as Executive Chairman of IQE from September 2021 until
January 2022, when Americo joined the business. This gave
me a chance to engage more closely with the business, and
in particular our people, and I continue to be amazed by their
strength and resilience in what was a difficult year for
We believe that the future
is built on compound
semiconductors, and that
new materials, such as those
developed by IQE, are a
necessity needed to solve
the physical limitations of
silicon semiconductors”.
10
IQE plc
Annual Report and Financial Statements 2021
many coping with the ongoing global pandemic. IQE was
fortunate not to have its operations significantly disrupted
by Covid during the period, and this is in no small part due
to the tireless efforts of our colleagues. I would like to take
this opportunity to thank our Covid Committee, and all
our colleagues, for helping us to navigate through these
challenging times whilst keeping our sites safe.
Amidst this unprecedented and challenging macro
environment, we saw supply constraints within the broader
semiconductor industry and a softening of demand within
smart phone supply chains. Additionally, 5G MIMO-based
infrastructure deployments, mostly notably in China, were
weak all year, resulting in reduced GaN sales for our Wireless
business. There was, however, solid demand for our Wireless
GaAs product throughout the year, and this resulted in high
use of our facilities in our Taiwan site. This demand will be
supported by our investment in eight new and refurbished
tools at the Taiwan site to support further growth in 2022.
Our Photonics business benefited from continued demand
for VCSELs for 3D Sensing throughout 2021, however, we saw
a 17% decline overall in revenues year-on-year. This occurred
due to smaller chip sizes being required for facial recognition
technology, and the rephrasing of some defence and security
orders into 2022, resulting in a temporary decline in our
Infrared business 2021. This reduction was partially offset by
additional customer qualifications and growth in the optical
communications markets, as well as growing customer interest
in our next generation long-wavelength VCSEL technology.
These market conditions, coupled with a significant foreign
exchange headwind, resulted in an 13% reduction in revenues
year-on-year. Whilst extremely disappointing, we believe
GaN remains an essential material for 5G infrastructure
and demand is expected to recover over the multi-year
deployment cycle. IQE remains essential to technology
growth markets in many exciting end markets, as we are
the only compound semiconductor epitaxy foundry with
a global footprint.
We achieved several key product milestones throughout the
year, and we continued to make good operational progress
during 2021. In September we announced the closure of the
Group’s Singapore site as part of the Group’s consolidation
strategy. It follows our previous announcement regarding
the closure of our Pennsylvania site and will enable us to
consolidate our operations into strategic sites and transfer
expertise, IP and assets to Taiwan and North Carolina;
improving production efficiency and margins in the medium
to long-term. To further support efficiency improvements,
we entered into a multi-year strategic IT transformation
agreement with Critical Manufacturing to support the
Company’s future growth through a Manufacturing
Execution System (MES).
We also entered into key strategic partnership agreements
during 2021. In October we announced a long-term strategic
collaboration with GlobalFoundries® to develop gallium
nitride on silicon (GaN on Si), a technology vital for mobile
and wireless infrastructure applications. In addition, we also
agreed a multi-year partnership agreement in Asia. Whilst we
are contractually obliged to keep the details confidential, we
are very excited about this partnership, and we look forward
to continuing to further our ambition to work more closely
with our customers.
Board matters
2021 has seen us make a number of changes to IQE’s
Board. We were pleased to welcome Victoria Hull, who was
appointed as a Non-Executive Director and Remuneration
Committee Chair, and an appointee to the Audit & Risk
and Nominations Committee following Sir David Grant’s
retirement from the Board. I would also like to thank Sir David
for his commitment to IQE and the Board during his tenure,
particularly as Remuneration Committee Chair. Victoria is a
great addition to the Board and possesses strong experience
gained across a variety of sectors including technology as well
as corporate finance, which is already proving invaluable.
During the year, Dr Drew Nelson transitioned from his
previous role as CEO to a Non-Executive Director with the
title of President. I would once again like to thank him for his
dedication to the business. Through his vision and drive, IQE
has established a solid platform with strong market positions
and global leadership in compound semiconductors. We look
forward to continuing to benefit from his industry expertise.
During the period, a Board-level Environmental, Social and
Governance Committee was formed in order to develop and
monitor the execution of IQE’s ESG strategy, as well as to
oversee the communication of the company’s ESG activities
with all stakeholders. This is a critical step in IQE’s ESG journey,
and reflects our commitment to continuous improvement and
implementing best practice across the business.
Looking ahead
We believe that the future is built on compound
semiconductors, and that new materials, such as those
developed by IQE, are a necessity needed to solve the
physical limitations of silicon semiconductors. Structural
technology trends, such as the Metaverse, will drive IQE’s
future growth and the demand for sensing & display
solutions. Additionally, many emerging technological trends,
such as AI, the convergence of information technology and
biotechnology in applications such as wearables, along with
the move to electric and autonomous vehicles, will rely on the
capabilities of compound semiconductors. This is why we are
so confident of the opportunities that lie ahead.
We will look to capitalise on our market leading position under
Americo’s new leadership, with a renewed focus on close
alignment with our customers, including through strategic
partnerships. From these strong foundations, Americo will set
out his strategy for the future direction of the business this
year and I look forward to embarking on IQE’s next phase of
growth alongside him and our strengthened Board.
Phil Smith
Chairman
29 March 2022
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Strategic ReportWhere innovation starts w Performance highlights
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We recognise our success relies upon not only our
financial performance, but achieving our operational
and social goals.
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Financial highlights
Revenue: £154m
Adjusted EBITDA*: £19m
155
156
140
178
154
37
26
16
30
19
Non-financial
highlights
Gender diversity
(Group level)
Male
84%
Female
16%
17
18
19
20
21
17
18
19
20
21
Read more
on page 24
Net debt: £(6)m
Capital expenditure
cashflows: £15m
Safety course
completions
46
21
(16)
2
(6)
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5
15
3,564
4,163
17
18
19
20
21
17
18
19
20
21
Adjusted operating
profit/ (loss)*: £(6)m
Operating profit/
(loss): £(20)m
27
16
(5)
5
(6)
17
9
(19)
(6)
(2)
20
21
Read more
on page 32
Total GHG emissions
(tCO2e)
32,726
23,772
17
18
19
20
21
17
18
19
20
21
Adjusted diluted EPS
(£p)*: (2.41p)
EPS (£p): (3.87p)
3.38
1.38
(2.46)
0.29
(2.41)
1.98
0.12
(4.51)
(0.41)
(3.87)
20
21
Read more
on page 34
* The nature and description of
annual performance measures are
included in Note 5 on page 114. The
nature of adjusted diluted EPS is
referenced in Note 12 on page 120.
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Annual Report and Financial Statements 2021
Business review
Wireless
Photonics
CMOS++
In 2021 IQE’s Wireless business saw strong
growth in GaAs driven by 5G handset
penetration and WiFi 6. 5G handset market
share is significantly higher than 4G share
at a comparable point in their respective
rollout cycles. WiFi 6 & 6E volumes grew in
the first half of 2021, with some slowdown
due to semiconductor component
shortages in the later part of the year.
The overall trend in WiFi connectivity
remains extremely favourable for
compound semiconductors, with WiFi
6 & 6E having already extended the
upper frequency range to 6GHz and
the forthcoming WiFi 7 standard poised
to further extend the upper frequency
to 7.25 GHz. Enabled by GaAs-based
power amplifiers, this allows compound
semiconductors to capture significantly
more market share than for previous
WiFi generations. The demand for mobile
products was countered by slowdowns in
Asian 5G infrastructure deployments, which
resulted in Wireless revenues declining
by 12% year-on-year. Despite this, the
fundamental advantages of GaN remain
compelling for massive MIMO deployments
and with the vast majority of the world’s
population still not covered by a 5G wireless
network, much more lies ahead in the
infrastructure deployment cycle
Dr Wayne Johnson
Executive Vice President,
Sales & Business
Development
“The importance of compound
semiconductor materials to key
wireless applications has never
been greater. Evolution of wireless
standards, driven by the insatiable
demand for increased bandwidth
and low latency, has driven these
applications even further toward
the compelling value proposition
of IQE’s GaAs and GaN wafer
products.”
Compound Materials on Silicon (CMOS++)
is an IQE business focused upon combining
the advanced properties of compound
semiconductors with those of Silicon,
resulting in products featuring the
performance advantages of compound
semiconductors integrated seamlessly
with leading edge CMOS technology. IQE’s
CMOS++ products are all focused on scaling
to larger wafer diameters (200 and 300 mm).
This allows IQE to engage with specialty
Silicon foundries who are beginning to enter
the compound semi space.
2021 saw strong activity in the integration
of compound semiconductors on silicon,
with revenues up 28% year-on-year. In
addition to Si photonics, IQE is active in
GaN on Si technology development for RF
and display (LED) applications. IQE has also
created unique VCSEL technology on 200
mm Germanium substrates which provides
clear line of sight to ultimately scaling to
300 mm Silicon. IQE’s CMOS++ strategy is
part of a larger thrust to scale compound
semiconductors to larger wafer diameters.
IQE’s Photonics business delivered a
robust year defined by growth across a
number of key market verticals, despite a
17% decline in revenues overall. Current
generation VCSEL revenues were lower
year-on-year due to smaller chip sizes
being required for facial recognition
technology. This reduction was partially
offset by additional customer qualifications
and growth in optical communications
markets and growing customer interest
in our patented long-wavelength VCSEL
technology, which is being used to develop
the next generation of higher performance
mobile and automotive sensing
technologies. Additionally, growth in our
data communications business serving
hyperscale datacentre markets accelerated
during the year, driven by IQE VCSEL
technology adoption in new energy efficient,
high-bandwidth big data platforms.
Our Infrared business saw a temporary
decline in 2021 following record year in
2020, due to the re-phasing of certain
defence and security orders into 2022.
Building on a record set of results in
2020 for our ‘Night Vision’ materials, IQE
entered a contracted three-year production
ramp for GaSb based electro-optic sensor
materials, while our InP business in optical
communications markets performed very
strongly with growth driven by the global
rollout of 5G networks.
Dr Mark Furlong
Executive Vice President,
Produc t Management
Dr Rodney Pelzel
Chief Tec hnology Officer
“IQE continues to be the technology
leader for the integration of
compound semiconductors on
Silicon and Germanium. This
leadership makes IQE the partner
of choice for new market entrants,
being Silicon foundries.”
“2021 saw our Photonics
business capitalise on many
new growth opportunities in
megatrend markets, powered by
IQE compound semiconductor
technologies. Customer
partnerships in aerospace
and security as well as new
opportunities in healthcare
sensing and microLED displays
will be transformative to our
future Photonics revenue growth
as market adoption accelerates.”
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IQE welcomes
Americo Lemos
as CEO
Americo joined IQE in January 2022 as Chief Executive Officer,
bringing with him a wealth of experience from across a broad
spectrum of global technology companies.
He is a highly respected industry expert with significant
knowledge gained in various executive positions throughout
the semiconductor value chain. Most recently he was
at GlobalFoundries as Senior Vice President of Business
Development for Asia Pacific and China Country President. Prior
to this, he was Senior Vice President at Qualcomm, responsible
for its data centre business. Before joining Qualcomm, Americo
was Vice President of Platform Engineering at Intel, responsible
for strategic ventures with Chinese semiconductor companies.
With over 25 years of experience, he possesses a strong mix
of commercial expertise, longstanding customer relationships
and specific market knowledge. As a proven leader, Americo
understands the importance of building connections with both
customers and team.
Americo’s appointment is an exciting new phase for IQE in its
journey of compound semiconductor market leadership. We
warmly welcome Americo and we look forward to sharing
his journey over the years to come, as we work to provide
advanced technology solutions to shape the future and enable
a new digital age.
I am extremely excited by the
opportunities that lie ahead for IQE,
and the critical role we play in the
semiconductor ecosystem. Recent
events such as the global pandemic
have demonstrated the criticality
of electronics and semiconductors
in our everyday lives, and with its
global footprint IQE is strategically
positioned in the compound
semiconductor value chain to fuel the
next wave of innovation.”
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Executive Leadership team
Q: What attracted you to IQE?
A: I am extremely excited by the opportunities that lie ahead
for IQE, and the critical role we play in the semiconductor
ecosystem. Recent event such as the global pandemic have
demonstrated the centrality of electronics and semiconductors
to our everyday lives, and with its global footprint IQE is
uniquely positioned in the compound semiconductor value
chain to fuel the next wave of innovation. I am honoured to be
taking the helm of this esteemed global business at such an
exciting time for our industry.
Q: How do you plan on using your significant
international industry experience?
A: I have over 25 years’ experience in the industry and
have had the chance to work for some of the greatest
technology companies in the world. I joined IQE having
spent a number of years working across the semiconductor
space, with experience ranging from systems to chip design
and involvement in semiconductor foundries, most recently
as GlobalFoundries’ Senior Vice President of Business
Development for Asia Pacific and China Country President.
This international outlook, experience in delivering growth in
Asian markets and knowledge of our customer base will all
play an essential role as we shape the strategy and vision for
the business.
Q: How have you found relocating to the UK?
A: I am married with two grown up sons and we have
recently been living in California, so this is a big change. Our
family has been lucky enough to have had the opportunity
to travel significantly and live in different places around the
world, and we always relish the opportunity to experience
different cultures. My wife and I are very excited and looking
forward to discovering all the wonderful things the UK has
to offer.
Q: What have you learnt in your early conversations
with colleagues and customers?
A: I am thoroughly impressed with the dedication and
knowledge of my new colleagues at all levels of IQE. They are
world-class and have all given me a very warm welcome. In
particular, I must recognise our stellar Executive Leadership
Team who, alongside me, will provide strategic and operational
leadership to the business. It is important that we have a
strong team with the right breadth and depth of skills with a
laser focus on our people, culture, processes, and strategies.
The ELT is empowered to make efficient and effective decisions
to drive business and operational performance.
Q: What are your plans for the business?
A: My core objectives are to restore growth at IQE and to
build a strong technology roadmap, as well as a diversified
customer base to capture the opportunities presented by
upcoming megatrends in the industry. I have been encouraged
by conversations with our valued customers who are keen to
further entrench their close commercial relationships with
IQE. This will be a focus for me in the coming months. My
immediate priority will be about putting in place a structure
to enable us to scale the business and set us up for success.
I look forward to updating the market on my vision for the
strategic direction of the business in due course.
Q: What difference will shareholders and other
stakeholders see?
A: I recognise that the business has faced challenges, but I
am confident that with a clear strategic direction and focus
on executing our business plan we can deliver a strong
platform for growth and long-term sustainable returns for our
shareholders into the future. From a customer perspective,
we must shift to become a global customer-centric
organisation underpinned by strong commercial and strategic
partnerships with a deep understanding of their needs. I
believe IQE has a bright future – we are uniquely placed in
a growing global market and I look forward to realising all of
the opportunities that lie ahead.
Americo Lemos
Chief Executive Officer
29 March 2022
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What makes
our model work
How we
create value
Long-standing partnerships
with customers
IQE is a materials solutions provider, enabling
advanced technologies throughout major
global supply chains. We work with customers
across the value chain.
Highly skilled and experienced people
IQE attracts and develops the top talent in the
compound semiconductor industry, and is therefore
able to offer a wealth of technical expertise across
our product portfolio.
Breadth of intellectual property portfolio
With an extensive patent portfolio and significant
process IP, utilising MOCVD, MBE and CVD platforms,
IQE has an enviable and protected position within
diverse technology markets.
Widely recognised technology leadership
As a materials specialist with a commitment
to innovation, IQE is at the forefront of new
technology and has a track record of enabling major
technological product trends, from R&D to mass
production.
Global manufacturing footprint
Headquartered in the UK and with manufacturing
operations in three major continents, IQE has
broad market access, close customer proximity and
global manufacturing flexibility and resilience.
Superior quality is a core competence
With a reputation for manufacturing products of
the highest quality, IQE’s wafers drive superior
yields and unit economics for our chip customers.
Research &
development
New
products
A programme of innovation
that drives leading edge
technologies, working
in partnership with the
world’s major technological
supply chains.
Developing leading edge
products with superior
performance and quality
characteristics, enabling
the technologies of today
and tomorrow.
Underpinned by:
Our culture
& values
Our strategic
goals
IQE’s strength lies in the expertise
and diversity of our workforce and
we recognise that teamwork and
collaboration are at the heart of the
Company. We strive for a culture of
integrity, accountability, excellence,
valuing people and teamwork.
By investing in the future of
compound semiconductors and
scaling up the business for growth,
IQE is targeting expanding margins
and cashflows. Integral to this is the
development and mass production
of advanced materials that are key
to the macro trends such as the
proliferation of 5G communications,
WiFi 6 connectivity, the Internet
of Things, Augmented Reality
and the Metaverse.
Expanding margins and cash generation
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Manufacturing
capacity
Customer
qualification
Mass
production
Investment in our large-
scale mass production
foundries has created the
scale for us to capitalise on
the expanding compound
semiconductor market.
Exacting quality standards,
world-leading IP and
process know how enables
broad product qualification
with major international
customers.
As volumes increase within
an expanding industry,
superior economies of scale
and operating leverage can
be achieved.
Sound governance
& risk management
As a global operator with a 30-year
heritage, IQE has an enviable record
of operating safely, compliantly and
with continuity of operations. The
semiconductor industry is dynamic
and fast paced however oversight
from our Board ensures the strategy
and execution of our business
incorporates best practice and
proactive risk management.
Responsible
business operations
The health and safety of our
people, the environment and the
communities in which we operate
are of paramount importance. We
view our global supply chain as an
extension of our business and for
this reason we are committed to
operating responsibly.
Expanding margins and cash generation
The values
we share
Customers
Innovative new product offerings to enhance the
competitive advantages of our customers
£3m
Technology-related development expenditure
Employees
We are committed to promoting an environment
and culture that provides agile and life-long learning
2,719
Hours of learning completed 2021
Investors
We continue to reinvest in growth and innovation,
positioning the Group for a multi-year growth cycle
£15m
Capital expenditure investment in 2021
Communities
We seek to contribute to the economic, social
and environmental sustainability of our local
communities through a range of initiatives
1 day
Annual paid employee volunteering leave entitlement
Environment
We ensure that our activities and manufacturing
operations are conducted in a way that minimises
our impact on the environment
23,772 tCO2e
Total GHG emissions
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Our strategic progress
IQE operates in a market with
high barriers to entry, where our
deep expertise, process know-
how and intellectual property
portfolio provide a significant
competitive advantage.
Our Wireless strategy
IQE is the number one manufacturer of GaAs wafers
for handset power amplifiers, having grown through
organic and inorganic strategies. As the front-end
module of mobile handsets incorporates greater
integration over time, and as 5G technologies
proliferate, compound semiconductor content will
increase in these devices. IQE’s GaAs wafers are integral
to both 5G handsets and WiFi 6 routers, both of which
experienced significant sales growth in 2021. IQE’s
GaN wafers are found in 5G base stations, in particular
Massive MIMO. Whilst deployments of these slowed
in 2021, a significant future infrastructure build
is anticipated.
Our Photonics strategy
IQE is the market leader in VCSEL wafers used for
3D sensing, being the only outsourced epiwafer
manufacturer globally to have scaled and sustained
mass production of this product. IQE’s heritage in
laser technologies and past investments in R&D
have generated this position within a broad portfolio
which includes InP lasers for datacoms and Sb lasers
for aerospace and security applications. Sensing
technologies are set to proliferate in many future
devices and use cases, with anticipated growth
in the Internet of Things, augmented reality
and the Metaverse.
Investing in the future
of compound semis
Scaling up the
business for growth
Expanding margins
and cashflows
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Strategic goalLeveraging and expanding our IP portfolioDeveloping new productsTargeting new market entryInnovation in integration and miniaturisationStrategic goalExpand Group capacityQualify customers in strategic marketsEnhance management controls, systems and processes to enable mass productionStrategic goalSuperior unit economics from improved yields and economies of scaleCustomer and market diversification Developing relationships as a materials solutions provider
Progress in 2021
Future objectives
Expansion of VCSEL portfolio with turnkey IQVCSEL™
Building our universal roadmap
product line
Achievement of key power and reliability milestones for its
IQDN-VCSEL™ technology for advanced sensing applications
at longer wavelengths on 150 mm GaAs substrates
Scaling of IQE’s VCSEL on Ge technology (IQGeVCSEL) to
200 mm
Focussing our development programmes on market driven
solutions. Longer term developments such as cREO® and
PQC are being de-prioritised in the short term
Expanding IP Portfolio – eight new grants and five patents
registered in 2021
for compound semiconductors at
scale. IQE’s materials underpin
connectivity, advanced sensing and
power applications, enabling the key
macro trends of 5G, Big Data and IoT,
advanced health care, the Metaverse
and autonomous drive vehicles
Developing next-generation Wireless
products for 5G communications
(including mmwave) and 5G
handsets (including front end
module integration)
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Intellectual Property
Read our IP update
Progress in 2021
Future objectives
Capital expenditure of £15.1m focussed on deployment of
additional tools to meet demand for IQE’s Wireless products
in Asia
The project to close IQE’s Pennsylvania US site by 2024 and
consolidate the Group’s US MBE development and production
at the North Carolina US site is on track
Business systems and process transformation programme on
track to provide a consistent, agile and scalable platform for
business growth
Several key appointments made to strengthen the
management team
Ongoing global footprint optimisation
to maximise participation in global
markets, create superior economies
of scale and maximise production
scalability
Completion and benefits realisation
from the business systems and
process transformation programme
Progress in 2021
Future objectives
Closure of IQE’s Singapore site by mid-2022, realising c.£4.8m
Continuous improvement in
per annum of cash savings
Long-term strategic collaboration agreement signed with
GlobalFoundries® to develop vital GaN on Si technologies for
mobile and wireless infrastructure applications
Multi-year strategic partnership signed with a major
semiconductor foundry to develop epiwafers for 5G small cells
yield management, operational
optimisation and customer
responsiveness will ensure IQE is best
placed to target profitable growth
Due to high operational gearing,
margins and cashflows expand with
higher volumes
Page 28
Key appointments
Read about our 2021 Talent Acquisition
Page 22
Technology Roadmap
See our development pathways
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The marketplace
The compound semiconductor marketplace is set to expand
with the proliferation of 5G and a new age of connectivity.
The advanced properties of compound semiconductors are
increasingly used to enable devices to operate at high power,
high frequency or to emit and detect light, overcoming the
limitations of silicon semiconductors. IQE is at the forefront
of enabling new technology trends which will shape the way
we live over the coming years.
Future trends
The future will be enabled by compound
semiconductors. Their unique properties are
required in order to overcome fundamental
limitations of silicon, the mainstay
semiconductor material. The integration of
compound semiconductors with leading edge
CMOS technology enables a multitude of
advanced applications. Key future technology
trends will shape our markets and revolutionise
the world as we know it and drive end demand
for our products.
What we’re focused on
While IQE’s products have many end-market applications and
increasing future use cases. in 2021 we were primarily focussed
on enabling these key technologies:
3D and
Advanced
Sensing
Applications
Facial recognition
‘World facing’ cameras enabling
Augmented and virtual reality
Structured light and Time of Flight
(ToF) solutions
Long-wavelength VCSELs
In-cabin automotive and LiDAR
Environmental and healthcare monitoring
Proximity sensing
5G Network
Infrastructure
and Data
Connectivity
Global roll out of base stations and small
cells
GaN on SiC
Next generation lasers for fibre optics (10G
& 25G DFBs APDs and PINs
InP technologies to enable high-speed
(>25G), high-performance backhaul optical
networks
WiFi 6 & 6E
5G Handsets
Front end module integration
5G switches and filters
Displays
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Data centres and The Edge
Technology applications across all markets
require huge amounts of data to be
transmitted quickly and accurately. The data
“superhighway” is reliant on both high data-
rate wireless and wired technology, both of
which are dependent on IQE’s materials. On
the wireless side, IQE’s GaN solutions are a
key enabler. For optical networks and data
centres, IQE’s DFB and APD solutions are
necessary for high speed interconnects and
transceivers.
Compound semiconductors: Essential for innovation
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Healthcare wearables
Advanced healthcare is an emerging market
that will drive significant demand for compound
semiconductors. A key trend is the adoption of
wearable health care monitors that are being
deployed in devices such as smart watches.
In their current form, wearables allow users
to monitor personal health and exercise data
such as blood pressure, oxygen saturation and
Electrocardiogram readings.
Future applications will provide non-invasive
monitoring of blood bio-markers using lasers
and photodetectors in the form of miniaturised,
wearable spectrometers. Possible applications
include the measurement of key blood
constituent concentrations for markers such as
glucose, lactose and alcohol. In addition, this
technology offers unique possibilities for virus
and disease detection.
Ultimately, the entire family of compound
semiconductor materials will be required to
enable comprehensive wearable technology. IQE
is the only compound semiconductor materials
company that is able to manufacture the full
product suite at scale. As such, we anticipate
the increased functionality required by advanced
wearable devices will drive the demand for IQE’s
products, and we are excited to be a key enabler
for next generation healthcare.
Next Generation
Automotive
Autonomous electric vehicles are the future
of the automotive industry. The realisation of
self-driving vehicles relies on IQE’s products.
Advanced driver assistance systems (ADAS)
use LiDAR (Light Detection & Ranging) that
will be enabled by IQE’s VCSEL and APD
technology. Ultimately, it is desirable to use
longer wavelength VCSELs for eye safety at
street level. IQE is the leader in developing
this next generation LiDAR enabler. Vehicle
electrification also requires highly efficient
power electronics that are underpinned by
IQE’s GaN technology. Finally, autonomous
vehicles will require ultra-reliable high-speed
data connections. Again, IQE’s materials are
the foundation that make this possible.
Metaverse
The Metaverse is a 3D immersive experience
that allows an individual to interact with a
virtual environment, relying on advanced
sensing and display technology that are
dependent on compound semiconductors.
IQE has a well-established pedigree for
developing, scaling and manufacturing
complex materials solutions that it will
leverage to provide the materials that
underpin the metaverse. IQE’s advanced
VCSEL and InP technology will be front and
centre as this market develops, and IQE is
developing µLED materials that will be critical
to high-resolution displays needed to make
the Metaverse a reality.
Integration with CMOS++
As noted, the future depends on the integration of compound semiconductors with silicon in
order to combine the performance advantages of both. Effective integration will see compound
semiconductors move to larger wafer diameters (8-inch and 12-inch) in order to match the
wafer sizes used by today’s silicon industry and to leverage the maturity of automation that
exists for 8-inch and 12-inch toolsets. Moving to larger wafer diameters will unlock new
relationships with new partners that will ultimately result in business growth for IQE.
Proliferation of 5G
5G and connected devices are self-reinforcing macro trends that will transform the way we live
over the coming years, and IQE’s technologies are critical for 5G handsets and infrastructure.
In addition to higher speeds, 5G enables low latency, massive scaling in machine-to-machine
connections and network slicing.
The rollout of 5G has begun at a varied pace, however the world continues to embrace and
deploy 5G technologies, and we anticipate this being a multi-year, mega-replacement cycle.
Over time, the improved connectivity associated with 5G will allow the full potential of the
Internet of Things to be realised.
Read our Technology Roadmap
on page 22
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Where innovation starts
Technology roadmap
IQE has a focused roadmap which lays out our future
technology development goals. Through the combination of
cutting edge innovation and the widest product portfolio in
the industry, IQE is where innovation starts.
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Short Term
Medium Term
Long Term
5G Handsets
Continued
5G handset
penetration
200mm Transition
IoT
mMIMO
RF energy
5G Handsets
High efficiency
power amplifiers
Integrated PA &
switch
5G Infrastructure
mMIMO
Macro cells
Power and low-
noise amplifiers
WiFi 6/6E
Power Amplifiers
for routers
5G Handsets
Pathway to
integration of CS
on Silicon
Front end module
integration
5G NR mmWave
Densification of
networks with
small cells
Power
Electronics
High efficiency
power switching
Smart grids
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Wireless
Photonics
Short Term
Medium Term
Long Term
3D Sensing Content Gain
World-facing
camera (ToF / Lidar)
DToF (WFC) for
Android market
3D BOLED Sensing
Beneath Screen
(Below OLED) 3D
Sensing
Automotive Sensing/LiDAR
Development
of long-wavelength
laser technology
for autonomous
vehicles
Advanced Sensing
Sb & P based
detectors and
emitters for advanced
infrared sensing
applications
Aerospace and
security applications
Connectivity
InP for high speed
datacom and telecom
networks
VCSELs for short
length datacoms
Critical enabler for 5G
applications
Advance sensing for healthcare
Non-invasive
clinical-grade
measurement of
health bio-markers
8-inch VCSEL
Patented
material system
High volume
manufacturing
platform
Displays
Emissive display:
Micro & Mini
LED – power
efficiency,
contrast and
resolution
Display for wearables
GaAs/GaN based
Micro LED display
technologies for
augmented reality
applications
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Our People
IQE’s strength lies in the expertise and
diversity of our workforce.
“ IQE understands that its continued
growth and success will be built not
only on operational results, but also
from ensuring we have strength from
diversity and clarity of purpose, strong
leadership, teamwork and alignment to
our vision.“
Clare Farmer
Chief People Officer
A central part of our DEI commitment is our
desire to demonstrate inclusive leadership and
represent the diversity of our organisation and
the communities where we live and work. Heading
into 2022, we continue to invest in developing our
company culture with our Executive and Senior
Leadership Teams beginning their own learning
and cultural awareness programs so they can
inspire a culture of belonging from within IQE,
and ultimately drive greater representation at the
highest levels. We are sourcing Diversity Partners
across the Group who have a shared interest in DEI
education and advocacy.
We recognise that gender diversity remains an
ongoing issue within our industry, however we are
committed to improving our gender balance. Our
percentage of female employees remained at 16% in
2021 and 2020, reaffirming our need to redress this
balance. Due to a reporting error our 2020 Annual
Report incorrectly reported a gender diversity split at
Group level of 74% male and 26% female.
In 2021 33% of senior leadership vacancies were filled
by women, which was unchanged from the previous
year. Our female representation on the Board
increased to 29% with the appointment of Non-
Executive Director Victoria Hull in July.
We support our Talent Acquisition Team to increase
inclusion during the hiring process, and have aimed
to attract, develop and retain STEM talent and secure
more BAME joiners. We aim to achieve this through
our Employee Value Proposition (EVP), raising our
employer brand and greater engagement with
younger generations through social media channels.
Diversity, Equity and Inclusion (DEI)
IQE is made up of different races, genders,
ethnicities, backgrounds, religions and beliefs
across the globe. IQE is committed to providing
equal opportunity, fair treatment and inclusion
for all, without regard to race, gender, age,
religion, ethnicity, identity, sexuality, disability,
genetic disposition, neurodiversity, veteran status,
perspective, experience or any other aspect which
makes an individual unique. Following Americo's
arrival we are revisiting our company values to
make sure we are cultivating a work environment
where different perspectives, inclusive
relationships and diverse networks can unlock
unlimited potential for all.
Female
29%
Male
71%
Gender Diversity -
Board level
Female
16%
Male
84%
Gender Diversity -
Group level
22 female
hires
82 male
hires
Gender diversity –
Group level recruitment
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Diversity, Equity and Inclusion –
Attraction & Selection
In 2021 our Talent acquisition team attended DEI workshops to raise awareness
of unconscious bias during the selection process. Practical steps taken to improve
hiring practices include job advertisements being adapted to highlight flexible
working arrangements and the removal of biased language to encourage a wider
candidate pool, as well as interview panel formations being reviewed to further
encourage inclusion. We have also sought new networks with diverse advertising
job boards to appeal to and encourage sought after candidates. An example of this
is our partnership with ‘Women Rock’, a recruitment network celebrating women
in technology.
In 2021
33%
of senior leadership
vacancies were filled
by women.
IQE understands that when everyone feels valued,
appreciated and free to bring their full, authentic
selves to work, they can then be more creative,
innovative and successful. Through our culture
transformation, IQE continues to invest in its
evolving journey of effective and sustainable
DEI transformation.
Employee wellbeing
IQE is focusing on the physical and mental health
of our employees, particularly after the pressures
brought about over the last two years by the
global pandemic. We routinely promote wellbeing
support available through our employee benefits
platforms and undertake benefits sessions with our
brokers to ensure our leaders, people managers and
employees are connected.
January is Benefits Months and in 2021 we focussed
on communicating our employee benefits across the
Group, with an emphasis on what we offer and how
to access and effectively utilise personal benefits.
IQE continuously reviews the make up to ensure
our plans are attractive and market competitive to
our employees and, where possible, their families.
We were pleased to see an increase in benefit
participation in 2021.
We have ten qualified Metal Health First Aiders
at IQE with other employees awaiting requested
training to increase support across the Group. We
have a forum which aids planning for international
and national events to proactively work towards
breaking down the stigma of seeking mental health
assistance. We recognise Mental Health Awareness
Week with a range of communications and support,
including an engaging series of videos across our
global organisation showing how each of us were
coping during lockdowns.
Our Employee Assistance Programmes (EAP) offer
24/7 support and include bereavement assistance,
counselling, legal and financial support. Early
intervention assistance is provided through external
specialists and employee wellness plans; mitigating
absence and aiding returns to work.
Across our global sites we actively encourage our wellness
rooms, which offer employees a designated private, quiet
and relaxing space when they need a break time for religious
practices and maternal necessities.
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Our People
continued
Communication and engagement
In 2021 we engaged with Best Companies, a leading
employee engagement specialist who deliver
powerful data and insights to help positive change
within the workplace. We undertook our first formal
employee engagement survey titled ‘b-Heard’, and
were delighted to receive an 86% respondent rate.
We achieved ‘One to Watch’ status which represents
‘Good’ levels of workplace engagement as well as
uncovering 3, 2- and 1-Star businesses amongst our
Group. This was a fantastic result for our first year.
The b-Heard feedback encouraged us to create
action plans to improve. These were driven bottom
up, reflecting what our employees believe we do
well, where they believe we could close engagement
gaps whilst also sharing pockets of great practice.
We are very proud of our One to Watch status which
we will seek to retain and improve upon. We have a
strong desire to achieve a star for the Group overall.
Procurement of Workplace in 2020, an internally-
focused connectivity platform developed by
Facebook, Inc. has enabled the continued use
of groups, instant messaging and a news feed to
encourage employee communication. At the time
of writing, we have 394 users and 33 dedicated
groups; a 20% increase in users since 2020. Our
leaders and employees alike utilise the functionality
to talk, share and generally engage with each other
virtually. This has been a resounding success for our
business and allows us maintain an all-important
social connection whilst working remotely. Since
its launch in August 2020, we have seen over 1,749
posts created generating 4,699 comments and
22,975 reactions. Workplace also enables us to
tailor messages and internal communications which
bring light relief, essential to our mental and physical
health and wellbeing.
Across the Group, leadership teams engage with
employees through monthly communications
sessions as well as site-based General Manager
lunches and breakfast meetings which enable
employees and leaders to meet, raise issues, offer
ideas and forge strong relationships.
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Diversity, Equity and Inclusion –
Attraction & Selection
We are committed to promoting an
environment and culture that provides
for agile and life-long learning with the
following aims:
2,719
hours of learning completed in 2021
(2020: 2,492 hours)
• Transform how we train our people,
embracing digital training methods and
agile learning
• Ensure our engineering and technical
employees have defined training
pathways and we can demonstrate
visibility around training execution and
evaluation
• Shape the culture whilst embracing
technology to simplify and create
access for all to learn in an agile work
environment
• Align our Learning Management System
with our Quality Management System
to ensure the effective management of
competence.
Performance Management
“Performance Hub” was implemented in early
2020 to simplify and standardise the performance
cycle within IQE. Performance Hub provides
employees and managers a platform to record one-
to-ones, share transparent and honest feedback,
performance reviews and utilise the Personal
Development Plan functionality to further support
personal and career development. This has been
supported by user friendly guidance notes and
videos crafted with inexperienced people managers
and new joiners in mind.
In 2021 we introduced a calibration stage to our
Performance Management cycle; promoting fairness
and parity of performance and behavioural ratings
whilst identifying emerging and high performing
talent essential for effective succession planning
and organisational bench strength. This risk
management mitigates single points of failure and
retention risks through proactively upskilling others
and defining individual career pathways through
‘Career on a Page’.
Empowering and supporting our talent
IQE attracts the best and brightest global talent and
we work hard to offer an unbeatable experience,
recruiting, retaining and developing the best talent
in our sector.
We are continuing to use our Competence
Management System which encompasses a formal
learning and Assessment Process and various
training and development forms, plans and logs.
Training processes are now communicated within
departments and formalised via our document
control systems.
Through the use of Personal Development Plans we
have effectively identified, sourced and facilitated
learning and development activities, supported,
where possible, by government funding.
This includes supporting professional development
through formal qualifications, as well as enhancing
on-the-job knowledge and skills. In 2021 314
of our employees participated in Personal
Development Plans.
The b-Heard survey indicated a need to support the
development of the leadership teams. In partnership
with Results Exploration Group and The Engagement
Coach, IQE started management with a focus on
engagement, emotional intelligence, and teamwork.
The survey supported our focus to develop our
people and we continue to do so as we strive to
create engagement opportunities.
The Vault
Whilst the global pandemic continued to impact our
ability to offer face-to-face learning, we continued
to improve our online course offerings through
our Learning Management System ‘The Vault’. We
have been working with our global teams to create
bespoke content tailored to our colleagues. Recently
this has included a series of Risk and Governance
courses, and Quality, Health and Safety Modules are
being re-worked to raise awareness and mitigate risk.
Early Careers
IQE is deeply invested in supporting apprenticeships
and fostering early careers. In 2021 we reviewed the
current early-career programme and reaffirmed its
value to the business, with a focus on supporting
apprenticeships, graduates and PhD sponsorship.
We have established relationships with several
colleges and universities to attract, develop and
retain the next generation of IQE. 2021 saw us
attend our first virtual careers fair which was a
resounding success, securing hires and candidates
excited about the possibilities working with IQE.
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I joined IQE as Group Head of Marketing in September
based in the UK. I’m excited and proud to have joined
the IQE family to lead our marketing efforts. I was
inspired to join IQE because of its heritage, ambitions
and the opportunity that lies ahead for the business. It
is an exciting time to be a part of IQE as we are uniquely
positioned to capitalise on the opportunities within the
industry and support the development of technologies
such as 5G. I am beyond excited to be working in an
industry that is at the centre of everyone’s daily lives. We
have a great story to tell and I cannot wait to communicate
what we do.”
Steven Curwood
Group Head of Marketing
Elena Carabeau
Quality Intern
When I first started my internship at IQE North Carolina
in the summer of 2021, I wasn’t sure what to expect. I’m
an English major and a lifelong humanities student, and I
didn’t know if I could really help that much at a technology
company - especially one that produced a product I’d
never heard of in a way I didn’t quite understand. But
I’ve been blown away by all I know now. I’ve learned an
incredible amount, whether by touring the cleanrooms
and facilities, getting briefed on projects and IQE’s
environmental health and safety protocols, getting to help
operate the emergency generators, or just by reading
through documents. I’m able to reflect on how grateful I
am for this opportunity and what a wonderful experience
it was working in the Quality department at IQE.”
Shariq Enver
Technical Sales Manager
Debra Bailey
Shift Manufacturing Manager
I was delighted to join IQE as a Technical Sales
Manager, working out of the Wafer Technology site
in Milton Keynes. Sales is my passion and it is exciting
to be working for a company that operates right at
the cutting edge of science and technology. Having
graduated with a degree in Materials Science, I decided
to make the move from a commercial role where I
thoroughly enjoyed negotiating and closing contracts,
whilst expanding our customer base and developing
new business. I look forward to doing the same here at
IQE with our exceptional range of products.”
When I first started my role with IQE I was quite apprehensive.
Although I have a background in engineering, and several
years’ experience within manufacturing, I mainly worked in
the automotive sector and I did not know what to expect
working for a technology company. I am really pleased I took
the opportunity to join IQE, and am really enjoying learning
about the processes and the equipment. I also find growing
wafers fascinating, and something which I knew nothing about
before starting my role here. Although it has been challenging
at times, and a lot of information to take in, everyone has been
really supportive and patient, and I am starting to understand
what impact our products have on current, and future
technology markets.”
If you are interested in learning more about how IQE can support your career, please get in touch at TalentAcquisitionTeam@iqep.com.
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IQE plc
Annual Report and Financial Statements 2021
Communities and Social Review
Making IQE a better place to work is one of our key focuses
and the b-Heard survey identified that we need to more widely
promote our charitable and community work.
Our ‘Giving Something Back’ Committee was formed
to do just that and encourage wider engagement.
The purpose of the Committee is to facilitate
IQE’s charitable and community engagement, and
it is focused on a global approach to giving, but
with local execution. The GSB Committee will be
instrumental in taking feedback from our employees
and driving initiatives and action on this topic.
Each site has a budget for which will be administered
through a site champion. Employees can request
funds on behalf of an organisation directly via their
site champions, who will liaise with the site General
Manager for approval.
Each employee is also eligible for one full or two half
days of paid Giving Something Back time to be used
for undertaking a volunteering activity. This way IQE’s
support can reach where it is needed most.
Throughout 2021 IQE staff participated in wide variety of activities in their local
communities. These included but were definitely not limited to the following:
Taiwan Blood Donation
In October our Taiwan site hosted its first on
site blood drive. It was very successful, with 32
participants donating. Our employees in Taiwan
hope to continue with this initiative, and IQE is
offering incentives and ongoing support to those
who wish to donate blood again.
Sponsorship of Newport Grass
Roots Cricket Club
For the last three years IQE has been proud sponsors
of Newport Grassroots Cricket. We look forward
to continuing to support all of Newport’s young
cricketers!
IQE Wafer Tech donation
to MK ACT
Pennsylvania ‘Out of the
Darkness’ walk
At IQE’s Wafer Technology site our staff participated
in a holiday gift collection for MK ACT, a charity
providing safe emergency accommodation in Milton
Keynes for people and their children escaping
domestic violence. The organisation was thrilled with
the amount of gifts collected for the holiday season.
Our staff in Pennsylvania participated in the American
Foundation for Suicide Prevention's “Out of the
Darkness” Walk held in Allentown in October. Funds
were raised by staff to aid in suicide prevention
education and survivor outreach programs.
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Supply Chain
IQE is committed to acting professionally, fairly and with
integrity in all our business dealings and relationships.
“ We view our supply chain as an
extension of our business and it is
therefore critical that IQE's ethical
standards are upheld by our partners.
We have strong relationships with our
strategic supply partners and recognise
that our success relies on sharing
capabilities and investing for growth
alongside them.“
David Bishop
Head of Global Supply Chain
Our ‘One IQE Management’ philosophy reflects our
core values and our ongoing commitment to doing
business in a responsible manner.
Expectations from our suppliers serve as an
extension of these principles and a shared
commitment to responsible sourcing practices.
Now more than ever, our suppliers are key partners
and continue to play a critical role in helping us
achieve our vision and goals. Just as IQE leaders
and employees are working daily to be ethical,
passionate, accountable, efficient, transparent and
always learning, we expect our supplier partners to
do the same.
2021 Supply Chain Review
From the grounding of the Ever Given container
ship blocking the Suez Canal for six days, to rising
COVID-19 cases driving labour shortages, to
extreme weather events, there have been plenty
of challenges for global supply chains in 2021.
Despite all of this, we are pleased to report that
once again in 2021, IQE did not experience any
significant disruption at any of our global sites. Over
the past year IQE has continued with its focus on
strengthening our strategic partnerships with key
vendors, driving our supply chains to become more
integrated at both a global and local scale.
We have also been focused on minimising the
impact of escalating costs driven primarily by raw
material commodity pricing, transport costs, energy
prices and inflation. As a result of our focus on
strengthening our strategic partnerships and taking
the opportunity to renew some of our contract
commitments early and ahead of price rises, we
have been able to minimise the impact of pricing
pressures on IQE’s business.
2021 has been a demanding year for IQE’s supply
chain but our continued focus on strengthening our
supplier relationships and sourcing strategies has
successfully limited any disruption.
Read more at
iqep.com/responsibility/supply-chain/
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Annual Report and Financial Statements 2021
Human Rights and Anti-Slavery Statement
IQE is committed to respecting the human rights
of all those working with or for us. We do not
accept any form of child or forced labour and
we will not do business with anyone who fails to
uphold these standards. IQE has a zero-tolerance
approach to modern slavery and is committed
to acting ethically and with integrity in all of
its business dealings and relationships and to
implementing and enforcing effective systems
and controls to ensure modern slavery is not
taking place anywhere in its business or in any
of its supply chains. The Modern Slavery Act
addresses the role of businesses in preventing
modern slavery within their organisation and
in their supply chains. IQE has developed and
implemented policies to comply with the
requirements of the UK’s Modern Slavery Act
and our Anti-Slavery Statement can be found at
iqep.com.
Read more at
iqep.com/responsibility
Anti-bribery and corruption
IQE maintains a zero-tolerance approach against
bribery and corruption. We have an established
anti-bribery and corruption policy, which includes
guidance on the giving and receiving of gifts and
hospitality. A Gifts and Hospitality Register is also
maintained to ensure transparency. Our anti-
bribery and corruption policy applies throughout
the Group and was updated in 2020 and is
supported by appropriate training which was
updated in 2021.
Whistleblowing
IQE offers staff a confidential reporting
mechanism, overseen by the Group’s General
Counsel & Company Secretary, which enables
employees to raise concerns of malpractice, non-
compliance or unethical conduct. The options
for raising concerns are widely communicated
to employees and are clearly set out in our
Whistleblowing Policy.
Confidentiality
Maintaining confidentiality is engrained in
our culture. Our policy and practice ensure
that all staff fully understand what constitutes
confidential information and restrict internal
access on a need to know basis. Information
relating to third parties is not disclosed without
the third parties’ written consent.
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Where innovation startsStrategic Report Intellectual Property
“ IP, particularly our know how and
patents, is fundamental to our
business. Understanding the alignment
of our IP to our technologies and our
customers’ product offerings allows
us to articulate and leverage the value
more effectively.”
Victoria Yeomans
Senior Patent Attorney
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IQE’s technology is underpinned by our intellectual
property (IP) portfolio. We have c.250 granted
patents, with 2021 yielding eight new grants and
five new patent applications. We have more in
the pipeline, along with a variety of registered
trademarks.
Our patents cover all of our technology
development areas directed to our customers’
products in mobile communications, IoT,
data networks, augmented and virtual reality,
automotive, healthcare and beyond. Our process
know how, the secrets of our trade which have been
gained through more than thirty years in the field,
enhances this work and is closely protected by IQE.
With rigorous internal processes to identify and
review inventions in our technology development
teams, we are able to harvest inventions efficiently
and to make strategic decisions over those that we
protect by patent and those we protect by trade
secrets and confidentiality. Training of our staff
ensures that everyone understands the value of our
IP in our technology and products.
Sensing
16%
Energy
39%
Connectivity
45%
IP portfolio per market
application
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Annual Report and Financial Statements 2021
Approach to Environment,
Health & Safety
“ Nothing is more important
than protecting our people, our
contractors and the communities
in which we operate. We strive for
strong levels of engagement with our
employees so that collectively we can
drive a proactive culture and a world-
class HSE performance.”
Scott McKinnon
Health, Safety and Environment Director
During 2021, IQE increased its already considerable
focus on the Environment, Health & Safety in order
to drive the necessary improvements required to
support our future ambitions.
A clear strategy for EHS improvements has been
formulated and was formally approved by the IQE
Board. During 2021 our EHS strategy focused on
ensuring we have solid foundations in place as we
continue to evolve our systems and processes in the
coming years to achieve world class Health, Safety
and Environmental performance.
What does world class performance mean to IQE?
Achieving world class Health, Safety & Environmental
Performance means the development of an
accountable culture where everyone working at IQE
understands their own responsibility, while keeping
their colleagues accountable for their behaviours.
This approach will be led from top management and
feed down through every level of our organisation.
A culture of respectful, positive challenge will be
engendered and we will strive to ensure our systems
and processes are robust, proportionate, understood
and maintained in operation. A proactive reporting
culture will exist, routine monitoring will be in place
to ensure compliance is maintained and continuous
improvement activities will be identified
and implemented.
How will this be achieved?
A clear road map has been set out with focus
areas defined year-on-year. The first two years
are focused on baselining our current position,
implementing strong foundations and putting
clear structures in place. Years three and four
see the strong foundations set and are focused
on evolution and continuous improvement. This
strategy focuses on six key areas which all have
associated actions as part of the road map to
drive improvement year on year:
• Visible leadership – increasing the visibility and
engagement of leadership to help develop a
positive culture;
• Governance – implementing robust
governance processes for HSE;
• Compliance assurance – implementing robust
compliance assurance processes;
• Competence – deploying a framework for
demonstrable competence at all organisational
levels;
• Learning organisation – deploying a framework
to support sharing and learning from events
and best practices across the organisation; and
• Continuous improvement – actively seeking
out best practices internally and externally
to drive continuous improvement across
HSE. We will also regularly review our
existing processes to identify opportunities
for improvement.
Active Communication and Engagement –
Zero is PossibleActive Communication and
Engagement – Zero is Possible
Active communication and engagement at all
levels in the organisation is vital to achieving
our vision. In order to support this, a campaign
has been devised which will run in two parts
sequentially. The ‘Zero is Possible’ campaign has
been launched and will focus firstly on keeping
EHS topics at the forefront of our people’s
minds. Through targeted campaigns we will
work to build mindsets within the organisational
teams that EHS improvement is within reach.
This will be followed by the ‘Zero Together’
campaign which will focus on personal
and collective ownership. By achieving this
ownership, we can strive to achieve our goal
of zero Occupational Safety, Environmental,
Process Safety, Fire or Security incidents
and also zero work related ill health. These
campaigns will create the baseline for the EHS
vision within the organisation and will focus on
the key topics of engagement, reporting and
sharing and learning. The campaigns will run in
alignment with key elements of our year-on-
year delivery plan, awareness campaigns and
education programmes.
Zero is Possible is our
roadmap to achieving zero
injuries, safety events,
environmental events,
breaches, and any work
related ill health.
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Environmental performance
IQE is actively engaged in developing technologies
that support a sustainable world.
Approach to Environmental Protection
As an organisation we are committed to minimising
our environmental impact and have a robust
environmental management system in place
to ensure compliance with regulations and to
encourage waste reduction. During 2021 significant
steps were taken to support these commitments.
IQE’s Environmental Policy clearly provides a
framework for ensuring key environmental
considerations are captured throughout our
business and in our key decision-making processes.
At IQE, we recognise that acting responsibly is not
just good for the world, but actively contributes
to the success of our business. IQE encourages
all employees to reduce their impact on the
environment, including through reducing waste,
recycling, restricting unnecessary travel, saving
water and reducing energy usage. We are focused
on implementing best practice measures to
minimise our environmental impact, and working
with our supply chain to do the same.
Environmental Management System
IQE’s Environmental Management System (EMS)
is designed to the ISO 14001:2015 standard.
This give us a robust framework to enable us to
meet Environmental Policy commitments and
requirements for environmental compliance. All of
IQE’s operating facilities are third-party certified to
meet the ISO 14001:2015 standard.
Waste, Water, Soil and Air Management
As a global organisation, IQE’s sites operate in
jurisdictions with diverse environmental legislation.
However, our core systems and processes ensure
that the approach adopted across the organisation
is consistent at all of our global sites. Each site
operates continuous improvement programmes
to reduce waste and to recycle and re-use
wherever practicable. IQE also closely monitors
the consumption of electricity, gas and water at all
facilities, and looks for opportunities to improve
energy efficiencies for new facilities, existing
facilities, and facility expansions. A number of
projects have been undertaken during 2021 to
support this, including the installation of two new
cooling systems in the UK and US to support the
recycling of water and replace older, less efficient
equipment.
During the year we have been working to ensure we
understand the environmental operating parameters
of our sites and that all measures are in place to
ensure compliance. We recruited a new Group HSE
Manager in the USA and felt it was a good time
to baseline our position. To do this we engaged
a specialist external organisation to review our
environmental compliance across our US sites, and
it is pleasing to report that they identified no major
non-conformances. This baselining identified many
best practices and it has allowed us to evolve our
systems where required and to share many learnings
across the wider IQE team.
During 2021 we placed significant focus on
reporting of EHS near misses and opportunities for
improvement across the organisation. These “free
lessons” allow us to identify and act on any concerns
before we actually have an incident or breach. It was
pleasing that the number of environmental near
misses/opportunities for improvement increased
significantly during the year as a result of this
promotion. The number of actual realised incidents
also dropped from seven to two.
Reclaiming our scrap wafers
In 2021 we carried out a review of a number of our waste streams, successfully
identifying a route for complete reclaiming of our scrap wafers. During our
manufacturing process we naturally generate wafers which are not suitable to send
to the end customer and in our UK and Asian facilities these wafers have historically
been sent away as scrap. Recently we partnered with a company who can reclaim all
of the raw materials from our wafers for which we receive a fee, and these materials are
able to be wholly reused in our supply chain. Across IQE globally this project has now
diverted eight metric tonnes of waste.
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Annual Report and Financial Statements 2021
GHG Emissions Summary
Total Greenhouse Gases (GHG)
sources and emissions (metric
tonnes co2equivalent (tco2e))
Stationary Sources
Hydroflurocarbons (HFCs)
Purchased Electricity
Total emissions:
Water Usage Summary
Total Water Use
(cubic metres)
Municipal Supply
Recycled Water
Purchased Water
Total water use:
Waste Generation Summary
Total Waste Generated
(tonnes)
Landfill (Non-Hazardous)
Recycled
Hazardous
Energy
Total waste generated:
Energy consumption summary
2021
3,689
0
20,084
23,772
2021
120,613
3,428
1,309
125,350
2021
121
1,341
353
13
1,828
2021 Environmental Performance
Type
Environmental Incidents (Reportable)
Environmental Incidents (Not Reportable)
2020
1
7
2021
0
2
Near Miss Reports/Opportunities for Improvement
8 (0.8 average per site) 25 (2.5 average per site)
Climate Change and Emission Reduction
IQE recognises that Climate Change is a key
challenge facing the world, and consequently we all
have a responsibility to work to address it. During
2021 IQE engaged with an external organisation
to independently verify our GHG emissions data.
Through the Achilles Carbon Reduce programme,
powered by Toitū Envirocare, the UK’s only Accredited
Greenhouse Gas Certification Scheme, we are being
assisted to measure, manage and report our carbon
footprint and drive business efficiency through
carbon reduction. We received an internationally
recognised ISO 14064-1 accreditation showing our
review has been successfully completed and our data
has been verified. This will now inform our future
GHG emission reductions activity.
We saw a significant reduction in GHG emissions
in 2021. This is likely resultant from a focus on
renewable energy at our global sites, reducing
GHG emissions from the generation of electricity.
Additionally, this is the first time our GHG emissions
data has been independently verified and certified
to an ISO 14064-1 standard and so it is likely to be
more accurate than previous years.
We also emitted 0 hydrofluorocarbons this
year resulting from our capture systems. Wafer
Technology, IQE's site in Milton Keynes, sent no
waste to landfill in 2021.
2022 Focus
During 2022, equipped with our verified GHG
inventory data, site specific plans will be evolved to
focus on any areas of concern. This will include a
review of all F-gas emissions alternatives to higher
risk substances. Additionally, an Environmental,
Social and Governance (“ESG”) Board Committee
was formed to assist with the development and
monitoring of IQE’s ESG strategy, as well overseeing
the communication of the company’s ESG activities
with all stakeholders. This high level of oversight
ensures IQE’s Board is fully aware of environmental
happenings within the business.
IQE's Milton Keynes site
sent no waste to landfill
in 2021.
(kWh)
Gas (kWh)
Electricity (kWh)
Transport fuels (kWh)
Energy consumption used to
calculate emissions (kWh)
2021
19,484,146
59,514,203
233,746
79,232,095
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Health and Safety Performance
Effective health and safety management is
critical to the success of our business.
Near Miss/Opportunity For Improvement (H&S) Year by Year
2019
160
2020
136
2021
452
2022 Target
813*
(16 average per site)
(13 average per site)
(45 average per site)
(90 average per site**)
*
Including environmental reports
** number of sites reducing from 10 to 9
We work hard to maintain and evolve our robust
workplace safety programs and systems for
controlling risk. The health and safety of our staff,
contractor partners and visitors to our facilities,
along with the environmental impact on the
communities in which we operate, are our number
one priority.
As previously mentioned, significant focus was
placed on the identification and reporting of
near misses and opportunities for improvement
across our organisation. Engagement with this
has been significant with reports received from all
organisational levels, and a number of these reports
have been considered as being worthy of awarding
the employees “Spot Awards” as recognition of
their importance.
Audit
In order to ensure the highest hazard elements of
the businesses are being robustly managed, a new
audit programme was launched during 2021 which
focussed on one topic per month that could be
considered amongst our highest hazard areas. This
has been an excellent tool for promotion of cross
site sharing and learning.
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Annual Report and Financial Statements 2021
2021 Health and Performance
IQE facilities report incidents, events and near
misses on a weekly basis. All incidents are
investigated to an appropriate level in order that
we can learn from events and minimise the risk
of repeat events. During the year “Incident on a
Page” documents were developed for cascade of
information around the Group. These are discussed
at senior level on a quarterly basis and four sharing
and learning sessions occur across the company per
year to discuss these events.
Type
Lost Time Injury
All Injuries
2021
6
21 (including 6 LTIs)
In 2021 there we 21 injuries across IQE’s operational
sites, of which six of these resulted in work time
being lost by the employee who was injured. All
of these incidents were thoroughly investigated
and actions taken to minimise the potential for re-
occurrence, and all injured employees subsequently
returned to work.
In 2021 there were 4,163 safety course completions
across our global sites, an increase from 3,564
in 2020.
2022 Focus
Health & Safety Management System and
ISO 45001
A key focus during 2021 was building the processes
required to achieve the ISO 45001 Occupational
Health and Safety accreditation across our
operational sites. In Taiwan, ISO 45001 has already
been achieved and the sites in Newport and Cardiff
(IQE Europe) have undertaken the Stage 1 audit,
with Stage 2 scheduled in the first half of 2022.
Other IQE sites will begin the process in 2022, with
the aim to attain certification early in 2023.
Process Safety
Process safety is a critical initiative for 2022. This
work began during 2021 and will become embedded
in the coming year. Process safety is a disciplined
framework for managing the integrity of operating
systems and processes that handle hazardous
substances. Process safety events are high potential,
low frequency as opposed to occupational safety
events which tend to be more regular and less
severe in outcome. The results of process safety
failures can be catastrophic.
Other key activities
Many other activities are being undertaken to
improve our systems and processes during in 2022,
with an additional focus being placed on Health
and Wellbeing, and given the ongoing situation
with COVID-19, we feel it is even more important to
support employees who we may not see in person
month to month.
2021 Performance
Lost time injury
Total injuries
Total events (incidents, justified alarms, LOC)
Near miss reports
6
21
94
476
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Engagement with our stakeholders allows us
to grow and execute our strategy. Our impact
on, and engagement with, our key stakeholder
groups is considered within the implementation
of our strategy, which is overseen by the
Executive Management Board and supported by
the Board of Directors. We consider the impact
we have on our stakeholders, as well as what
our stakeholders consider important, when
developing our plans for continued success.
We have set out below our key groups of
stakeholders, the issues and factors relevant to
those stakeholders and how we have engaged
with those stakeholders.
How the Board has engaged with shareholders, the workforce and other stakeholders
Stakeholder
Customers
Employees
Stakeholder description
Material issues
We provide the best advanced semiconductor
materials solutions to our customers, supported by
new product offerings and personalised customer
support. We have a wide and diverse range of
both corporate and academic customers across
many different industries and end applications. Our
product solutions support our customers to address
some of the world’s most pressing technological
advancements.
• Consistently high quality products
• High standard of business conduct
• Product development support
• Fair pricing
• Excellent ongoing customer support
Our employees are fundamental to our business
success. We continually invest in our people,
developing the capabilities that we will need to
succeed over the longer term. We are committed
to being the company where the best in our sector
want to work and strive to offer opportunities that
will attract, motivate and retain talented employees,
enabling them to give their best.
• Opportunities for personal development and
career progression
• Trust and encouragement to contribute to the
business’ success
• Consideration of their health and wellbeing
• Working as part of an inclusive and diverse culture
Investors and
Shareholders
We place considerable importance on the
maintenance of regular and open dialogue with our
shareholders. Our goal is to deliver our investors and
shareholders with returns through profitable and
sustainable growth with the efficient use of capital.
• Current and future financial performance
• Maximising opportunities for growth
• Environmental, social and governance issues
Partners and Suppliers
We recognise the value of our partners and
suppliers. Our supplier chain plays a vital role in
supporting our business growth and efficiency. To
meet the expectations of our customers, we develop
strong working relationships with our suppliers and
look for our suppliers to provide added value.
• Forecasting visibility
• Product quality
• Fair pricing
• Long-term partnerships
Society
We believe that our technology and products will
benefit and advance society. We work hard to ensure
that we have a positive impact on all those around
us.
• Local investment
• Opportunities for local investment
• Impact on local and wider environment
38
IQE plc
Annual Report and Financial Statements 2021
Stakeholder Engagement
Engaging with our stakeholders and acting in a
way that promotes the long-term success of the
Group, while taking into account the impacts of
our business decisions on our stakeholders, is
central to our strategic thinking and our statutory
duty in accordance with Section 172(1) of the
Companies Act 2006. This constitutes our Section
172 Statement as required under the Companies
(Miscellaneous Reporting) Regulations 2018.
The Board of Directors consider, both individually
and collectively, that they have acted in a way that
they consider, in good faith, would be most likely
to promote the success of the Company for the
benefit of its members as a whole, having regard to
the matters set out in Section 172 (a) to (f), in the
decisions taken during the year.
Recognising that companies are run for the
benefit of their shareholders, but that the long-
term success of a business is dependent on
maintaining relationships with stakeholders, the
Board continuously reviews which relationships
support the generation and preservation of value
in the Company. These relationships include those
with our customers, employees, investors and
shareholders, partners and suppliers and society.
As a Board, our intention is to behave responsibly
and ethically at all times, in line with our Company
values, and to ensure that our management teams
operate the business in a responsible manner and to
the highest standards of business conduct and good
governance. As we act in a way which reflects our
values, we will contribute to the long-term success
of the Company and continue to develop our
reputation as a responsible and successful Company
that delivers stakeholder value.
Further information as to how the Board has had regard to the Section 172 factors:
Section 172 Factor
Key Examples
Consequences of any decision
in the long term
• Consideration of how IQE generates long term value in the through development
of our Business Model and Strategy
Interests of employees
• Participation in Diversity, Equity and Inclusion planning for the business
• Promotion of employee wellbeing initiatives and benefits awareness
• Participation in Town Halls and employee forums
Page
Page 16
Page 24
Fostering business relationships with
suppliers, customers and others
• Building strong relationships with customers and suppliers within the Group’s supply chain,
Page 30
which is essential for achieving the Group’s long-term strategic goals.
Impact of operations on the community
and the environment
• Consideration of Environmental, Social and Governance improvement strategies
Page 33
• Review of environmental performance, ISO 14001 Environmental management system
and emission reduction initiatives
Maintaining high standard of business
conduct
• Promotion of responsible business operations, with a focus on the Group’s
Anti-bribery and Corruption, Confidentiality and Whistleblowing policies,
and Anti-Slavery Statement
Acting fairly between members
of the Company
• Shareholder engagement
• Investor information and the Annual General Meeting
Page 31
Pages 38
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Section 172(1) StatementWhere innovation startsStrategic Report t
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Our approach and appetite for risk
periodically report to the Audit & Risk Committee
on the Group’s principal risks and the mitigating
actions being taken to address those risks.
The Group Risk Committee is responsible for the
maintenance and regular updating of a risk register
which articulates the Group’s principal risks and the
actions being taken to address those risks. The risk
register is in a standardised format and includes the
likelihood of a risk materialising, and an assessment
of that risk both before and after the Group’s
mitigation activities.
We recognise risk as an inherent part of our
business operations and we approach risk with the
same deliberate, strategic consideration as other
aspects of the business. The effective management
of risk contributes significantly to the successful
delivery of the Group’s strategic plans and
objectives. The Group Risk Committee monitors
the risk environment, in particular those identified
as principal risks, on a regular basis while the
Board is responsible for the overall stewardship of
risk management and internal control. The Group
Risk Committee considers risks using a top-down
and bottom-up approach, with the Committee
members obtaining input from around the
business, which together with the oversight and
support from the Audit & Risk Committee and the
Board, creates an effective system for monitoring,
planning and developing a Group-wide approach
and culture to risk. The Group Risk Committee will
Board
Reports to
Audit & Risk Committee
Works with
Group Risk Committee
Risk Reviews
• Regular reviews of Groups principal risks
Risk Assurance
• Specialist functions setting policies
and performing reviews
Risk Register
• Group risk register maintained and reviewed
by Group Risk Committee
• Sites, BU’s & support functions provide specific risk
registers for review.
Bottom-up reviews
Operating sites, Business units,
Support Functions , R&D
40
IQE plc
Annual Report and Financial Statements 2021
The Group continues to develop its risk
management framework towards a ‘Three
Lines of Defence’ model. The Group is
focussed on establishing the necessary
processes and internal expertise for
the first and second lines of defence
and will thereafter look to establish an
internal audit function. In 2021 the Group
continued to improve its first and second
lines of defence through the recruitment
of experienced subject matter experts and
the development of its internal controls,
policies and processes.
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Three lines of defence model
1
2
3
Risk & Risk
appetite
First line
of Defence
Second line
of Defence
Third line
of Defence
Oversight
Principal risks and uncertainties
The table below sets out the Group’s principal risks and describes the likelihood, potential impact and the Group’s mitigation
measures for those risks. We have also identified the direction of change from 2020.
Principal risk and
why it is relevant:
Risk likelihood and
Trend:
Potential impact:
Medium
Key Mitigation:
• Strong internal controls, including technical and engineering control
Potential impact:
High
Major health and
safety incident and/or
major accident to the
environment (MATTE).
IQE operates in a
highly controlled and
regulated environment
due to the nature of
the materials used
in its manufacturing
processes.
Low
Loss of key people. IQE’s
people are fundamental
to its success and
IQE has a number of
individuals in key roles.
measures
• Continuous improvement of health, safety and environment
management systems
• Continuous auditing and monitoring of production systems and
equipment and close down of audit actions
• Only trained and competent persons permitted to work with
potentially harmful materials
• ISO 14001 for all operational sites
Effect:
Harm to IQE’s people
or the environment,
reputational damage,
regulatory investigation
and/or legal proceedings,
fines and penalties.
Key Mitigation:
• Competitive reward schemes including comprehensive benefits and
Potential impact:
High
an all-employee share option scheme
• Employee communication and engagement strategy
• Talent development and retention plans
• Succession management
• Corporate processes and infrastructure
Cybersecurity including
risks from malware,
malicious actions,
accident and other
unauthorised access.
Infringement or loss
of IQE’s intellectual
property rights.
IQE’s intellectual
property rights are a
core element of its
competitive offering.
Medium
Key Mitigation:
• Investment in people, processes and technology
• Third party vulnerability assessments, testing and close down of
actions
• Staff training and IT policies regarding use of IT and systems
Medium
Key Mitigation:
• Patent strategy
• Proactive and rigorous defence of IQE’s rights
• Appropriate contractual confidentiality obligations and controls
around the sharing of sensitive information
• Internal controls to protect IQE’s confidential information
Key:
Increased risk
Decreased risk
No change to risk
New risk
Effect:
Quality issues,
production issues,
technology development
delays, wage inflation.
Potential impact:
Medium
Effect:
Operational disruption,
loss of intellectual
property, loss of data.
Potential impact:
High
Effect:
Degradation of IQE’s
competitive advantage,
loss of market
opportunity, significant
legal fees.
41
Where innovation startsStrategic Report
Risk likelihood
and Trend:
Principal risk and
why it is relevant:
t Our approach and appetite for risk
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Breach of legal
and regulatory
requirements. IQE
operates on a global
scale and must ensure
compliance with
laws and regulations
wherever we do
business.
compliance with our legal obligations – particularly
around, health, safety and environment, taxation,
export controls and anti-bribery and corruption
laws
Key Mitigation:
• Global monitoring of commercial arrangements and
• Monitoring and reporting of legal and regulatory
• Global policies and procedures to ensure
issues to the Audit & Risk Committee
• Global whistleblowing policy
agreements
Medium
Potential impact:
High
Effect:
Harm to IQE’s people
or the environment,
reputational damage,
regulatory investigation
and/or legal proceedings,
fines and penalties.
Potential impact:
Medium
Key Mitigation:
• Continued development of products and
Potential impact:
High
Effect:
Loss of market opportunity
leading to reduction in
revenues and profit.
Potential impact:
High
Effect:
Loss of market share, price
erosion, reduced sales
volume and profitability.
Potential impact:
High
Effect:
Risk of loss of market
share, product volume
and reduced sales and
profitability.
Changes in international
export controls laws
which impacts on IQE’s
ability to serve global
markets.
High
Increasing competition
or erosion of market
opportunity from
changing geo-political
environment and new
market entrants attracted
by high growth potential.
technologies which can be supplied to a number of
different geographical markets in compliance with
export control laws
• Diversification of customers and products
• Use of production equipment which is subject to
lesser export control restrictions
• Monitoring of changes in export control laws
Key Mitigation:
• Ensure that IQE’s products remain world-leading
through investment in opportunities identified in
product roadmap
• Proactive customer engagement including direct
engagement with end-customers
• Diversification through new markets, new products
and new customers
• Pursuing long-term commitments from IQE’s
customers
High level of customer
concentration with
the majority of IQE’s
revenues derived from
a small number of key
customers.
Medium
Key Mitigation:
• Customer diversification to reduce extent of
reliance on key customers
• Product diversification with existing and new
customers
• Market diversification through new global markets
and new product opportunities
• Strategy as a materials specialist, enabling supply
across the market
Key:
Increased risk
Decreased risk
No change to risk
New risk
42
IQE plc
Annual Report and Financial Statements 2021
Medium
Key Mitigation:
• Capital structure strategy
Principal risk and
why it is relevant:
Risk likelihood and
Trend:
Insufficient cashflow
generation to underpin
any capital investment
that might be needed
to exploit business
opportunities.
New products fail
to deliver expected
revenue and
profitability.
Medium
• Capital investment strategy including management of credit facilities
• Long term business planning to determine investment priorities and
phasing of investments
• Cashflow forecasting and working capital management
Key Mitigation:
• Engaging with customers early in the product development lifecycle
to align new product and technology development with customer
requirements
• Qualifying new products with customers and investment in capacity
to support customer qualification and R&D
• Maintaining a clear product roadmap which ensures that IQE
remains at the forefront of new technology
Disruption or inflation in
global supply chains
Medium
Key Mitigation:
• Long term agreements with critical suppliers
• Qualifying multiple suppliers
• Capacity and stock planning
• Forward buying of utility contracts
Key:
Increased risk
Decreased risk
No change to risk
New risk
Potential impact:
Potential impact:
High
Effect:
Inability to exploit
opportunities and grow
resulting in lower revenue
and profitability.
Potential impact:
High
Effect:
Lower than expected
revenue and profit
growth, reduced ability to
invest.
Potential impact:
Medium
Effect:
Impacts on production
resulting in lower revenue
and profitability. Increased
cost of production.
43
Where innovation startsStrategic Report
Principal risk and
why it is relevant:
Risk likelihood
and Trend:
Potential impact:
Medium
Key Mitigation:
• Solution due diligence and vendor partnering
Potential impact:
Medium
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Transformation of IT
systems, including
Manufacturing Execution
System, causes disruption
to IQE’s business
Insufficient liquidity or
cash funding available to
meet obligations as they
fall due.
Low
Effect:
Business disruption or
escalating costs resulting
in lower revenue and/or
profitability.
Potential impact:
High
Effect:
Going concern risk and
reputational damage.
• Senior stakeholder ownership, programme
reporting and structured programme governance
• Extensive planning on business change
requirements and time commitments from SMEs
Key Mitigation:
• The Group prepares regular financial forecasts to
evaluate its funding 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 in order to ensure that appropriate cash liquidity
and funding headroom is maintained to meet financial
obligations as they fall due.
• On 30 December 2021 the Group refinanced its
£25,900,000 ($35,000,000) multi-currency revolving
credit facility from HSBC Bank plc. The facility term is
for a 14 month period to 30 April 2023 and includes
an option that requires HSBC Bank plc consent to
extend for a further 12-month period to 30 April
2024. The Group has complied with all covenants
associated with the facility which remained undrawn
at 31 December 2021.
• On 29 August 2019, the Group agreed a £30,000,000
five-year Asset Finance Loan facility from HSBC Bank plc
of which £25,000,000 has been drawn. The Group has
complied with all covenants associated with the facility
with a balance of £16,595,000 remaining outstanding at
31 December 2021.
• The Group’s net debt (excluding lease liabilities)
position of £5,804,000 remains low in the context
of total available facilities of £55,900,000 and the
Group’s financial forecasts, in conjunction with the
level of assessed covenant headroom on committed
bank facilities show that the Group has adequate
cash resources to continue operating and to meet its
liabilities as they fall due for the assessed period to 31
December 2023.
Russia & Ukraine conflict
IQE does not have any current business in either Russia or Ukraine and an assessment of our supply chains has determined that
this conflict is unlikely to have a direct impact on IQE.
Key areas of focus
for 2022
• Assessment of IQE’s readiness
for an internal audit function
• Existing and emerging risks
that may impact on IQE’s ability
to grow
• Continue to evolve the group risk
register and risk management
processes, overseen by the Group
Risk Committee
Coronavirus
The Coronavirus pandemic continued for much of 2021 and caused significant disruption
to global markets, global supply chains and had wide-reaching macroeconomic impact.
At the onset of the pandemic, IQE implemented a Business Continuity Committee to
guide the Group’s response to Coronavirus. The Business Continuity Committee continues
to monitor risk indicators and external guidance and formulates policies and actions in
response to the situation as it evolves.
As with 2020, factors related to the Coronavirus situation did not materially affect
production at any of IQE’s sites or materially affect orders for IQE’s products from our
customers. As lockdown restrictions ease worldwide through 2022, we will continue
to take appropriate measures to protect our people and their safety remains our
primary objective.
44
IQE plc
Annual Report and Financial Statements 2021
Long term viability
As required by provision 31 of the UK Corporate
Governance Code 2018, the Board has assessed the
prospects of the Company over a three-year period,
considering the Group’s current financial position,
business strategy and the results of it performing a
robust assessment of emerging and principal risks
(see pages 40 to 44).
The Board believes that a three-year period is an
appropriate time frame for assessing the Group’s
longer-term viability. This period is covered by the
Group’s strategic planning horizon and considers
the nature of the Group’s principal risks. The
Board believes that a three-year period reflects
a period of time over which information and
forecasts concerning demand for the development,
qualification and production of compound
semiconductor wafers, is considered reasonably
reliable. In making this assessment, the Directors
have taken account of the Group’s current funding
arrangements and ability to raise new finance in
most market conditions if required.
The Board’s key criteria for considering the Group’s
viability is the maintenance of a net cash position
or the ability to operate within agreed debt
arrangements, demonstrating that the Group would
be able to meet its liabilities as they fall due. As
at 31 December 2021, the Group has a net debt
position, excluding lease liabilities of £5.8m and
committed bank facilities of £55.9m.
In making this assessment, the Directors have
considered the continuing growth in market
demand for compound semiconductors, driven by
the macro trends of 5G and connected devices, and
are confident that the overall market and number of
end use applications for compound semiconductors
will continue to grow over the medium to long term.
To ensure IQE continues to be well positioned to
exploit this growing market, both in the short and
longer-term, IQE has developed a clearly defined
technology and product roadmap that is supported
by a combination of strategic consolidation of the
Group’s manufacturing sites, capital investment
in manufacturing capacity and investment in next
generation compound semiconductor research and
development. The recently announced closure of
Group’s Pennsylvania (US) and Singapore facilities,
with the resultant consolidation of molecular beam
epitaxy capacity into the Group’s North Carolina (US)
site will deliver improved production efficiency and
margins in the medium to long term whilst recent
capital investment in manufacturing capacity at the
Group’s sites in Newport (UK), Massachusetts (US)
and Hsinchu (Taiwan) provides capacity for growth
that is aligned with the Group’s technology and
product roadmap.
Stress tests and scenario analyses to determine the
Group’s viability have been performed as part of the
assessment. In performing those tests, the Group
considered a number of scenarios linked to changes
in forecast levels of growth within the Wireless
and Photonics operating segments, changes to
capital and technology research and development
investment plans and the associated impact on,
and availability of any required funding to support
the Group’s viability over its strategic three-year
planning period.
The Board confirms that it has a reasonable
expectation that the Company will be able to
continue in operation and meet its liabilities as
they fall due over the three-year period to
31 December 2024.
Going concern
In accordance with provision 30 of the UK Corporate
Governance Code 2018, the Board considers it
appropriate to adopt the going concern basis of
accounting in preparing the financial statements.
Fair, balanced and understandable
The Board considers the Annual Report and
Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the
information necessary for shareholders to assess
the Company’s position and performance, business
model and strategy.
45
Where innovation startsStrategic Report w The Group reports financial performance in conformity
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with UK adopted international accounting standards
(“UK adopted IFRS”) and provides disclosure of additional
alternative non IFRS GAAP performance measures to provide
further understanding of financial performance. Details of
the alternative performance measures used by the Group
including a reconciliation to reported IFRS GAAP performance
measures are set out in note 5 to the financial statements.
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The Group has experienced strong year on year growth in
demand for wireless GaAs wafers (~20%) used in 5G handset
power amplifiers and Wifi 6 routers in 2021. This is part of a
multi-year replacement cycle driven by a macro technological
trend. This has been offset by a reduction in demand for
wireless GaN wafers (~50%) for 5G infrastructure due to
a slowdown in massive MIMO deployments, particularly
in Asia, when compared to 2020 and a reduction in VCSEL
3D sensing revenues (~20%). In combination with foreign
exchange headwinds on a reported basis, this has resulted
in a reduction in revenue of ~13.4% to £154,096,000 (2020:
£178,016,000) which is equivalent to ~£165,000,000 at
constant currency, which represents a ~7.3% underlying year-
on-year reduction.
The Group’s Wireless business segment represents the largest
proportion of the Group’s revenue accounting for 54.0%
(2020: 52.9%) of total wafer sales with Photonics representing
44.2% (2020: 45.9%) and CMOSS++ representing 1.8%
(2020: 1.2%).
Wireless wafer revenues decreased 11.6% (5.5% at constant
currency) to £83,217,000 (2020: £94,193,000). The decrease
in wireless wafer revenues reflects a significant decline in
wireless GaN epi-wafer sales that has only partially been
offset by increased sales of wireless GaAs epi-wafers for 5G
and WiFi 6. Demand for wireless GaN epi-wafers has been
weak due to end-market dynamics, including significantly
lower levels of massive MIMO base station deployments
in Asia and the slow rate of deployments in Western
markets. GaN epi-wafers remain an essential material for
5G infrastructure and demand is expected to recover over
the multi-year deployment cycle. Demand for wireless GaAs
epi-wafers has continued to grow in 2021 despite some
softening of demand in Q4, driven by 5G penetration of the
smartphone handset market and WiFi 6, a dynamic which
has resulted in high utilisation of manufacturing capacity at
the Group’s Taiwan facility, where the Group has invested in
eight new and refurbished tools which are currently being
commissioned to support further growth in wireless GaAs
epi-wafer demand in 2022 and beyond.
Photonics wafer revenues decreased 16.6% (10.4% at
constant currency) to £68,067,000 (2020: £81,627,000).
The decrease in photonics wafer revenues reflects lower
demand for VCSEL’s used in 3D sensing which has primarily
arisen from a combination of chip design changes and
softening in smartphone supply chains towards the end of
2021 and as a result of lower other photonic product sales
linked to a combination of factors including the re-phasing
of certain defence and security orders associated with large
programmes into 2022 and the slower introduction of sales of
certain new products.
Statutory gross profit decreased from £33,150,000 to
£17,644,000. The decrease in gross profit reflects a
combination of lower trading volumes and a reduction in
overall gross profit margin percentage to 11.5% (2020: 18.6%)
as the Group has experienced a reduction in utilisation of
manufacturing capacity at some of its sites, in the current
46
IQE plc
Annual Report and Financial Statements 2021
year. Adjusted gross profit, which excludes the charge for
share based payments, decreased from £33,327,000 to
£18,771,000 with a decline in gross margin from 18.7%
to 12.2%.
Selling, general and administrative (‘SG&A’) expenses
increased from £34,697,000 to £37,699,000. Adjusted SG&A,
which excludes adjustments for share based payments,
restructuring costs, Chief Executive Officer recruitment costs
and certain non-current asset impairments decreased from
£27,759,000 to £25,302,000. Decreases in adjusted SG&A
primarily reflect certain employee related cost savings and
reductions in certain other areas of corporate expenditure
that have been required commensurate with the decline in
current year revenue.
As part of the Group’s global footprint optimisation plan
restructuring costs totalling £3,681,000 (2020: £162,000)
have been incurred relating to costs associated with the
announced closures of the Group’s manufacturing facilities
in Singapore and Pennsylvania, USA. Within the restructuring
costs are £3,020,000 (2020: £nil) relating to a combination
of site decommissioning and employee related costs in
Singapore and £661,000 (2020: £162,000) relating to
employee related costs in Pennsylvania, USA. These site
closures are part of the Group’s global footprint
optimisation plan.
Chief Executive Officer recruitment costs of £741,000 (2020:
£nil) include settlement costs and legal fees of £318,000
associated with the transition of the former Chief Executive
Officer to a non-executive role and external recruitment fees
of £423,000.
Impairment of intangibles of £7,411,000 (2020: £6,537,000)
relates to the write-down in value of the Group’s cREO™ filter
technology development cost and patent assets totalling
£4,693,000 (2020: £nil) and the impairment of Photonic quasi
crystal technology related development costs and patent
assets totalling £2,718,000 (2020: £nil) where the Group has
taken the decision to pause development related activities
given the current lack of visibility over the timeline to
commercialisation of each of the technologies.
A reported operating loss of £19,978,000 has been incurred
(2020: Loss of £5,517,000). Reflecting the adjustments noted
above, an adjusted operating loss of £6,454,000 in 2021
compares to an adjusted operating profit of £5,386,000 in
2020 with the loss in 2021 principally reflecting the impact of
the decline in year-on-year revenue. The segmental analysis
in note 4 reflects the adjusted operating margins for the
primary segments (before central corporate support costs).
Wireless adjusted operating margins and photonics operating
margins declined from 12.1% and 11.1% in 2020 to 8.8% and
2.6% in 2021, primarily reflecting reductions in volume
and the associated under- utilisation of certain
manufacturing capacity.
Finance costs have remained broadly consistent year-on-
year at £2,213,000 (2020: £2,165,000) and reflect £905,000
(2020: £949,000) of bank and other interest costs primarily
related to the Group’s HSBC Bank plc asset finance facility and
the interest expense on lease liabilities of £1,308,000 (2020:
£1,216,000).
The tax charge of £8,811,000 (2020: £1,001,000 credit)
consists of a current tax charge of £1,124,000 (2020:
£1,132,000) primarily relating to taxable profits generated
by the Group’s Taiwanese operations and a deferred tax
charge of £7,687,000 (2020: £2,133,000 credit) which
principally reflects the partial reversal and de-recognition
of previously recognised UK and US tax losses. Deferred tax
asset recognition has been restricted in the UK to reflect
future forecast profitability, an assessment that includes
the impact of the Group’s consolidation and investment in
central and functional roles in the UK whilst US deferred tax
asset recognition has been restricted in the US to reflect
lower future forecast profitability arising from a combination
of the Group’s consolidation of its US manufacturing
operations and the continued shift in the balance of future
forecast manufacturing and hence profits from the Group’s
US operations to its UK and Asian operation. The effective
tax rate of 13.3% (2020: 21.4%) applicable to the tax charge
of £1,803,000 (2020: £1,520,000) on adjusted items is less
than the UK statutory tax rate of 19% primarily due to the
non-recognition of deferred tax assets for current year UK,
US and Singapore trading losses which include the adjusted
Chief Executive Officer recruitment and Singapore and
Pennsylvania site closure costs.
The increase in the loss for the year to £31,002,000 (2020:
£2,893,000) reflects a combination of the decline in
revenue in the wireless and photonics business segments,
reduced profitability within both segments as the Group has
experienced an increase in under-utilisation of manufacturing
capacity and the impact of adjusted non-cash and other non-
operational items which at an adjusted level, has reduced the
loss to £19,281,000 (2020: £2,702,000 profit).
Basic and diluted loss per share has increased from a loss
per share of 0.41p to a loss per share of 3.87p in the current
year with adjusted basic loss per share of 2.41p (2020: 0.29p
earnings) and adjusted diluted loss per share of 2.41p (2020:
0.29p earnings) reflecting the Group’s loss at a statutory and
adjusted profit level.
Cash generated from operations decreased in the year to
£18,883,000 (2020: £35,457,000) reflecting the Group’s
reduced trading performance partially offset by strong
management of working capital. The Group has continued
to invest in growing capacity to meet demand with
capital expenditure of £15,051,000 (2020: £4,993,000)
principally focused in Taiwan to support future forecast
growth in wireless GaAs epi-wafer demand, intangible
asset expenditure of £345,000 (2020: £731,000) focused
on a combination of intellectual property and the Group’s
multi-year strategic IT transformation programme and
investment in targeted capitalised technology development
of £2,994,000 (2020: £4,678,000).
The decrease in cash generated from operations, combined
with investing activity cash costs of £18,305.000 (2020:
£10,402,000), repayment of bank borrowings of £6,145,000
(2020: £7,030,000), repayment of lease liabilities (including
interest) of £5,013,000 (2020: £3,764,000) and payment
of the final cash costs of £1,792,000 (2020: £1,363,000)
associated with the prior period acquisition of the minority
interest in the Group’s Taiwanese subsidiary, IQE Taiwan ROC
have combined to reduce the Group’s cash balances from
£24,663,000 in 2020 to £10,791,000 in 2021 resulting in a
full year net debt position of £5,804,000 (excluding lease
liabilities) compared to a net funds position of £1,923,000
(excluding lease liabilities) in 2020.
Equity shareholder funds total £234,621,000 (2020:
£260,435,000) with the movement from 2020 primarily
reflecting the loss for the year, the impact of finalisation of
the prior year acquisition of the Taiwanese minority interest
and foreign exchange differences arising on the retranslation
of net investments in overseas subsidiaries.
Tim Pullen
Chief Financial Officer
29 March 2022
47
Where innovation startsStrategic Report Board of Directors
Strong governance and leadership
Dr Drew Nelson OBE, BSc,
PhD, FREng (67)
President and Non-Executive
Director
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 until January
2022. Dr Nelson has held several
Non-Executive Directorship roles, 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.
Phil Smith CBE, FREng, FIET
(64)
Chairman
Americo Lemos (54)
Chief Executive Officer
Tim Pullen BA, ACA (44)
Chief Financial Officer
Tim Pullen joined IQE as the Chief
Financial Officer in February 2019.
Prior to this, Mr Pullen was the
Chief Financial Official of Arm
Limited, a global semiconductor
and software design company
owned by Softbank Group.
Before joining Arm, he was Finance
Director at O2 / Telefonica UK, where
he held a variety of senior financial
positions including responsibility for
Technology Operations, B2B and Digital
segments and Finance Operations.
In connection with his time at O2,
Mr. Pullen also held roles as a Non-
Executive Director of Tesco Mobile,
O2’s joint venture with Tesco Mobile,
and was a Director of Cornerstone
Telecommunications Infrastructure
Limited, O2’s network sharing joint
venture with Vodafone. Tim has also
worked in a number of technology
and services businesses, including
Serco, Fujitsu and Dell. Mr Pullen is a
Chartered Accountant and qualified
with Ernst & Young.
Phil Smith joined the IQE Board in
2016 and took over as Chairman
in April 2019 and Executive
Chairman from September 2021
to January 2022.
Americo Lemos joins IQE
from the executive team at
GlobalFoundries Inc., a New York
headquartered semiconductor
designer and manufacturer.
Americo Lemos joined IQE in
January 2022 from the executive
team at GlobalFoundries, one of
the world’s leading semiconductor
manufacturers. As GF’s Senior Vice
President of Business Development
for Asia Pacific and China Country
President, Americo was responsible
for driving the business’s efficiency
and growth in these critical markets.
Prior to this, he was Senior Vice
President at Qualcomm, responsible
for its data center business. Before
joining Qualcomm, Mr Lemos was
Vice President of Platform Engineering
at Intel, responsible for strategic
ventures with China semiconductor
companies from 2009 to 2015. Before
Intel, he held leadership roles with
Texas Instruments, Quanta Computer
in Taiwan and Skyworks. Mr Lemos
holds a Master of Sciences, Electronics
and Computers degree from École
Nationale Supérieure de Sciences
Appliquées et de Technologie (ENSSAT)
in Lannion, France.
Previously he has been appointed
Chairman of Cisco for the UK in 2016,
after eight years as Cisco’s Chief
Executive. He is also the Chairman of
Innovate UK and Chairman of the Tech
Partnership. Additionally, he sits on
the Board of the National Centre for
Universities and Business (NCUB). Mr
Smith has a thirty-five year track record
in the technology industry in leading
companies including Philips Electronics
and IBM. As Chief Executive and now
Chairman of Cisco, he leads around
5,500 people in the UK and Ireland.
He created Cisco’s British Innovation
Gateway (BIG) programme, as a legacy
of London 2012 to spark nationwide
ingenuity, ambition and growth
through technology entrepreneurship.
In September 2014 he was awarded
an Honorary Doctorate by Birmingham
City University, cited for his outstanding
contribution to the IT industry, a
“leader among leaders”. In March
2015, Mr Smith was awarded an
Honorary Degree of Doctor of Laws
by the University of Warwick and in
2016 an Honorary Degree of Doctor
of Science by his alma mater, Glasgow
University. He was honoured in the
2019 Queen’s Birthday Honours List
with the award of Commander of the
Order of the British Empire (CBE) for
services to Technology, Business and
Skills.
Committee Membership
Committee Membership
Committee Membership
Committee Membership
48
IQE plc
Annual Report and Financial Statements 2021
Audit Committee Member
Remuneration Committee Member
Nomination Committee Member
Environmental, Social & Governance Committee member
Chair of Committee
Carol Chesney FCA (59)
Senior Independent Director
Victoria Hull (59)
Non-Executive Director
Sir Derek Jones KCB (69)
Non-Executive Director
An experienced Non-Executive
Director, Victoria Hull is
currently serving Non-Executive
Directorship and Remuneration
Committee roles for listed
technological companies
including Alphawave IP Group
plc and Network International
Holdings plc.
Victoria is also the Senior Independent
Director for Ultra Electronics Holdings
plc. Prior to these appointments,
Victoria held an executive directorship
at Invensys, now Schneider Electric.
Having worked in a variety of global
companies at Executive Committee
or Board level, her appointment to
the Board of IQE brings an extensive
understanding of legal, commercial
and governance matters. Victoria has a
strong background in corporate finance
and began her career as a trainee
solicitor at Clifford Chance LLP.
Carol Chesney joined IQE’s Board
in May 2019 and was appointed
as a Senior Independent Director
in November 2020.
Since October 2012 Mrs Chesney has
served as a Non-Executive Director
and Chair of the Audit Committee
of Renishaw plc. In addition, she is a
Non-Executive Director and Chair of
the Audit Committees of Imagination
Technologies, Hunting plc and Biffa
plc. Until 2018 Mrs Chesney served
as the Company Secretary of Halma
plc, a FTSE 100 health, safety and
environmental technology group,
having also served as the Group’s
Financial Controller. During her
time at Halma, Mrs Chesney’s role
included corporate governance,
legal compliance, equity incentives,
pensions, internal audit management,
taxation, property, health and safety
compliance, environmental reporting
and anti-bribery and corruption
compliance. Mrs Chesney is a Fellow of
the Institute of Chartered Accountants
in England and Wales, and qualified
with Arthur Andersen in the UK.
Sir Derek Jones KCB is Chair of
Keolis UK, the international
transport company; he is also
Chair of the Prince’s Trust in
Wales.
He is also an independent adviser
at Cardiff University, where he is an
Honorary Fellow and Professor, and
a Vice President of Cardiff Business
Club. Sir Derek was the Permanent
Secretary of the Welsh Government
until February 2017. Sir Derek spent
the earlier part of his government
career in Whitehall, working at HM
Treasury and the Department for Trade
& Industry, where he headed the Far
East Trade Desk. In government in
Wales he also served as Director of
Finance and Director of Economic
Affairs, during which time he was
instrumental in securing major inward
investment projects, particularly
from Japan and the USA. Outside
government, Sir Derek was Director
of Business & Strategic Partnerships
at Cardiff University, responsible for
securing long-term collaborations
with the private sector. He was made
Companion of the Order of the Bath
(CB) in 2009 and subsequently Knight
Commander (KCB) in 2014, for services
to economic and social conditions. Sir
Derek is also the Director responsible
for employee engagement.
Committee Membership
Committee Membership
Committee Membership
49
Where innovation startsCorporate Governance e
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Chairman’s
Governance
Overview
Dear Shareholders,
I am pleased to introduce IQE’s Governance Report
on behalf of the Board. The Board is collectively
responsible for IQE’s long-term success and hence
committed to conducting business responsibly,
maintaining high standards of corporate governance
and to aspiring to the highest levels of quality in
everything it does. I’m confident the Board’s continued
focus on these areas will support IQE’s performance,
its position in the market and enable it to grow and
embrace its opportunities as they arise. We have
recently incorporated the Environment, Social and
Governance Committee to develop and monitor IQE’s
ESG strategy and to be responsible for communicating
our ESG activities with our stakeholders. We look
forward to bringing you updates later this year.
The Board is committed to driving IQE’s long-term
objectives and to overseeing IQE’s operations to ensure
competent and prudent management. The approach to
governance is set by the Board, charging the Executive
Leadership Team with the responsibility to ensure that
the approach is effectively implemented across IQE’s
global business. It has been my privilege to lead the
Board through a number of changes through 2021
which I believe will support the business through the
coming important years. The Board and the Executive
have rightly been heavily focused during these tough
times on the resilience of our people, our business and
the way in which we interact with the societies in which
we all live and operate.
50
IQE plc
Annual Report and Financial Statements 2021
Board changes in 2021
On 22 November 2021 we announced that Americo
Lemos had been appointed as IQE’s new Chief
Executive Officer, starting on 10 January 2022.
Americo succeeds Dr Drew Nelson who completed
his transition to his new role as President and
Non-Executive Director on 30 October 2021. During
Drew’s transition and prior to Americo joining IQE,
acted as interim Executive Chair from 7 September
2021 to 9 January 2022.
The Board also said farewell to Sir David Grant
who retired from the Board and his position as
Remuneration Committee Chair on 18 September
2021 having been on the Board since September
2012. David made a huge contribution to IQE over
many years and had been an extremely effective
member of the Board. Victoria Hull was appointed
as a Non-Executive Director on 1 August 2021
and succeeded Sir David as the Remuneration
Committee Chair on his retirement. Victoria
has a broad range of experience and is already
making a strong contribution to the Board and the
Remuneration Committee.
Sir Derek Jones has been elected as the Board’s
director for responsible for employee engagement.
Derek will work with the rest of the Board and
the Executive Leadership Team in developing the
right communication channels for this important
responsibility. We also announced the creation
of an Environmental, Social and Governance
Committee which I am pleased to chair and which
will also comprise Derek and Drew as additional
members. Derek will report to the ESG Committee
on employee engagement matters.
During the year, I agreed with the Board that we
would carry out an internal evaluation of the Board.
I am pleased to confirm that we continue to have
a committed, engaged and effective Board that is
operating well. I am confident that recent changes
to the Board will only improve its effectiveness.
More details on the findings from the evaluation
are outlined on page 53. We continue to review the
Board’s effectiveness and will look to continuously
improve the Board’s function as it guides IQE.
I encourage all of our shareholders to engage
with us ahead of the AGM which will be held
on 28 June 2022. Notice of, and details of the
arrangements for, the AGM will be provided to
shareholders at the usual time and will take account
of legislative requirements, external circumstances
and the protection of the health and safety of our
employees and shareholders.
I am confident that the steps we have taken through
2021 will make a strong positive contribution to
IQE as we drive to achieve the vision and goals we
have set ourselves. I am delighted that Americo has
joined IQE as its new Chief Executive Officer and
look forward to seeing his positive impact on the
business.
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Phil Smith
Chairman, IQE plc
29 March 2022
51
Where innovation starts
Governance structure
Shareholders
IQE Board
Audit & Risk
Committee
Responsibilities:
• Reviewing financial
reporting
and disclosures
• Reviewing audit
effectiveness
• Assessing internal controls
and risk management
• Advising on external
auditor
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Nominations
Committee
Remuneration
Committee
ESG
Committee
Responsibilities:
• Review composition of
the Board
• Succession planning for
the Board and senior
management
• Review developments in
corporate governance
Responsibilities:
• Evaluate performance
and effectiveness of Chief
Executive Officer and
Chief Financial Officer
• Review and approve
principles
of IQE’s LTIP
• Maintaining dialogue with
IQE’s shareholders on
remuneration policy
Responsibilities:
• Develop and monitor the
execution of IQE’s ESG
strategy
• Oversee the
communication of the
company’s ESG activities
with all stakeholders
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See page 54
See page 58
See page 60
See page 75
Chief Executive Officer
Executive Leadership Team
Operating Sites
Business Units
Functions
Research &
Development
Role of the Board
Leadership and people
The Board is responsible for the overall conduct of IQE’s business and the
Directors have responsibilities under both the Company’s Articles of Association
and UK company law. The Board delegates day-to-day management of IQE’s to
the Chief Executive Officer and the Executive Leadership Team
• Concluded the search for a new Chief Executive Officer
• Concluded the search for a new Non-Executive Director and Chair of the
Remuneration Committee
The primary tasks of the Board in 2021 included:
Finance
Strategy
• Reviewed, challenged and approved the Group’s strategy for the period 2022
to 2024
• Regular reviews of key business decisions and their impact on the Group’s
strategy
Operations
• Monitored progress against the 2021 financial plan
• Reviewed and approved the financial plan for the period 2022 to 2024
• Monitored, challenged and approve capex and other significant expenditure
• Approved the Annual Report, half-year results and interim trading updates
• Considered and approved IQE’s going concern and viability statements
Governance and ethics
• Received operational, including health, safety and environment, updates at
• Carried out an internal Board evaluation, discussed the output with the Board
each scheduled meeting
and agreed areas for improvement
• Monitored performance and provided challenge in key areas of operations
• Received and reviewed feedback from institutional investors
• Reviewed the requirements of the 2018 UK Corporate Governance Code and
areas of non-conformity
• Regular meetings between the Non-Executive Directors only
52
IQE plc
Annual Report and Financial Statements 2021
Board and Committee attendance
Number of meetings in 2021
Attendance
Executive
Dr A W Nelson1
Mr Tim Pullen
Non-Executive
Mr P Smith
Mrs Carol Chesney
Sir D Grant2
Sir D Jones
Ms V Hull3
Board
Audit & Risk
Committee
Remuneration
Committee
Nominations
Committee
14
14
14
14
14
9
14
7
4
4
4
3
4
2
3
3
3
2
3
1
3
3
3
2
3
1
1 Drew Nelson ceased his position as CEO on 30 October 2021 and subsequently attended meetings in the role of Non-Executive Director.
2 David Grant retired from the Board in September 2021 and attended all eligible meetings prior to this time.
3 Victoria Hull was appointed as a Non-Executive Director in July 2021 and attended all eligible meetings following her appointment.
UK Corporate Governance Code compliance
IQE complied throughout 2021 with the principles and provisions of the UK
Corporate Governance Code 2018 except in the following areas:
Provision 5
IQE has a people forum and regular ‘Town Halls’ which senior management use
for engagement with the workforce. Sir Derek Jones was appointed as IQE’s first
Non-Executive Director responsible for employee engagement on 24 January
2022.
Provision 17
IQE does not currently maintain a succession plan for the Company Secretary or
all senior management immediately below Board level. IQE will work to develop
such plans based on merit and objective criteria. As part of its consideration
of developed succession plans, the Nominations Committee will consider the
linkage of its diversity objectives with company strategy and the gender balance
of those in senior management and their direct reports.
Provision 33
The Remuneration Committee has responsibility for determining the policy
and setting remuneration for the Executive Directors and the Chairman. It
also has responsibility to recommend and monitor the level and structure of
remuneration for senior management. However, the Remuneration Committee
does not currently determine the policy and set the remuneration for senior
management and the Company Secretary as required by the Code.
Provision 36
Share options granted to the Executive Directors under IQE’s LTIP are subject
to total vesting and holding periods of 3 years. In addition, Executive Directors
are subject to a minimum holding requirement equal to 200% of their base
salary and will have a post-employment shareholding requirement for 2 years.
The minimum holding will be equal to 200% of base salary in the first-year post-
employment, reducing to 100% of base salary in the second year.
A copy of the 2018 UK Corporate Governance Code is available at frc.org.uk.
Diversity
Independence
The Board considers that, with the exception of Andrew Nelson, all of the Non-
Executive Directors are independent in character and judgement and free from
any business or other relationship that could materially interfere with exercising
that judgment. Andrew Nelson was recently appointed as President and Non-
Executive Director following his transition from Chief Executive Officer.
The Board is also satisfied that there is no compromise to the independence
of, and nothing which would give rise to conflicts of interest for, those directors
who serve as directors on other company boards or who hold other external
appointments. The Board considers potential for conflicts of interest at every
Board meeting and ensures that directors present sufficient information for
those to be reviewed.
Appointment and time commitment
The Chairman and each of the other Non-Executive Directors have letters of
appointment.
The Chairman’s letter of appointment sets out the time commitment expected
of him. The other Non-Executive Directors’ letters of appointment set out
a minimum expected time commitment but do no set out a fixed time
commitment. The Non-Executive Directors are expected to allocate appropriate
time to IQE to perform their duties and to make themselves available for all
regular and ad hoc meetings. The Board believes each of the Non-Executive
Directors has sufficient time to perform their duties.
Board evaluation
The Chair and Company Secretary facilitated an internal review of the Board
during 2021. The process involved the use of an externally-facilitated platform
which gathered feedback on a range of areas including the Board’s composition,
processes, behaviours and activities. Feedback was provided on an anonymised
basis to encourage open and honest responses. The Chair held a number of
open conversations with the Board members on an individual and collective
basis to discuss their feedback. Positive feedback was received on the progress
the Board was making on areas such as governance structures, Board objectives,
quality of conversations and succession. We identified a number of areas for
increased attention and will continue to evolve the effectiveness of the Board
over the coming year. We have made significant steps in succession plans for
key leadership positions and evolved the composition of, and the skills within,
the Board. The Board considers that it is well placed to play a broader role in the
establishment of a culture for the evolution and next generation of IQE.
The Board made important progress in its equality, diversity and inclusion and
the recent establishment of the ESG Committee will help guide our journey in
those important areas. The Board will be working closely with the new CEO to
drive value creation.
53
Where innovation startsCorporate Governance Audit & Risk Committee
Chairman’s Introduction
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IQE’s Audit & Risk Committee continued its
oversight of IQE’s system of internal control
ensuring that certain elements of control
and reporting evolved in accordance with
the business’s evolution and the maturity of
operations. We understand the areas where
further enhancements are targeted and will
ensure these are advanced on a timely basis.
The Audit & Risk Committee has developed
good foundations over the past few years and
I look forward to continuing that development
with my colleagues.”
54
IQE plc
Annual Report and Financial Statements 2021
The Board considers the maintenance of high
standards in its governance and management of the
affairs of IQE as fundamental to the discharging of
its stewardship responsibilities. Accordingly, both
the Board and the Audit & Risk Committee continue
to keep under review IQE’s whole system of internal
control, which comprises not only financial controls,
but also business & operational controls, compliance
and risk management.
In 2021 the Committee placed additional focus on
IQE’s principal and emerging risks, with a continued
emphasis on those arising from the global COVID-19
pandemic and the resulting global economic
turbulence. The Committee spent a significant amount
of time with IQE’s internal finance function and
external auditors discussing, assessing and challenging
financial reporting and going concern assessments.
The Committee continues to assess IQE’s internal
controls and monitors the need for an establishment
of an internal audit function. The Committee used its
structured meeting schedule to ensure that it provides
robust challenge in the areas relating to financial
reporting, internal controls and risk management, the
external auditors and other issues pertinent to IQE.
Sir David Grant retired from the Board on
18 September 2021 and retired from the Audit &
Risk Committee on the same day. Victoria Hull was
appointed to the Board on 1 August 2021 and joined
the Audit & Risk Committee at the same time. The
Committee reviewed its effectiveness and terms of
reference during the year and determined that it
continues to perform effectively.
Carol Chesney
Chair
29 March 2022
Membership
Carol Chesney – Chair
Derek Jones
Victoria Hull
Carol Chesney is chair of the Audit & Risk Committee. Carol is a Chartered
Accountant and has also held a number of senior finance roles. The Board
is satisfied that Carol is the Committee member with recent and relevant
financial experience as required by the UK Corporate Governance Code
2018. The Board is also satisfied that the Committee as a whole has a mix of
experience and competencies to assess the issues facing the Group within the
semiconductor industry.
Meetings and attendance
The Audit & Risk Committee meets at least quarterly with additional meetings
as required. There were four meetings in 2021 and all of the Committee
members attended each meeting.
The meetings are also regularly attended by the Chairman, Chief Executive
Officer, Chief Financial Officer and other senior members of the finance team.
IQE’s external auditors attend every quarterly meeting and time is allowed
at the end of each meeting for the Audit & Risk Committee to discuss issues
with the external auditors without management being present.
Role of the committee
The Audit & Risk Committee is responsible for monitoring the effectiveness of
IQE’s financial reporting, internal controls and risk management systems and
processes and the integrity of IQE’s external auditors.
Key responsibilities
• reviewing the effectiveness of IQE’s financial reporting, internal control
policies and procedures for the identification, assessment and reporting of
risk
• reviewing significant financial reporting issues and judgements
• monitoring the integrity of IQE’s financial statements and any formal
announcements relating to IQE’s financial performance
• keeping the relationship with the external auditors under review, including
their terms of engagement, fees and independence
• reviewing and monitoring the need to establish a dedicated internal audit
function
• advising the Board on whether the Committee believes the Annual Report
and Accounts, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess IQE’s
performance, business model and strategy
• conducting the tender process and making recommendations to the Board,
about the appointment, reappointment and removal of the external auditor,
and approving the remuneration and terms of engagement of the external
auditor
• reviewing and monitoring the external auditor’s independence and objectivity
• reviewing the effectiveness of the external audit process, taking into
consideration relevant UK professional and regulatory requirements
• developing and implementing policy on the engagement of the external
auditor to supply non-audit services, ensuring there is prior approval of
non-audit services, considering the impact this may have on independence,
considering the relevant regulations and ethical guidance in this regard, and
reporting to the board on any improvement or action required
• reporting to the Board on how it has discharged its responsibilities
55
Where innovation startsCorporate Governance Audit & Risk Committee Report continued
Activities during 2021
The Committee continues to oversee a range of risk areas that are key to IQE’s long-term success and compliance with applicable laws and regulations.
The majority of the Committee’s work derives from a structured programme that is designed to fulfil its responsibilities as out in its terms of reference. The table
below summarises the key activities at each meeting during 2021:
Agenda item
Review financial performance with focus on liquidity and covenant strength
Review of financial statements, going concern assumption and compliance with
accounting standards
Review and recommend for approval year-end and half-year announcements
Review of significant reporting issues and material judgments
Review of key business risks
Consider requirements for internal audit function
Consider any material breach of law
Review whistleblowing policy and procedures for preventing fraud, bribery and corruption
Review of insurance programme, policies and material judgments
Review representation letter for full-year and half-year
Review effectiveness of Audit & Risk Committee
Review of auditor quality and independence
Consider audit effectiveness
Review accounting and corporate governance developments
Committee-only meeting with external auditor
March
•
May
•
September
•
December
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The UK Corporate Governance Code 2018 requires the Directors to prepare
the Annual Report and Accounts and to state that they consider them, taken as
a whole, to be fair, balanced and understandable and provide the information
necessary for shareholders to assess IQE’s position and performance, business
model and strategy. The Board requested that the Audit & Risk Committee advise
it as to whether the Annual Report and Accounts meet those requirements.
This work formed part of the review of the draft financial statements that was
undertaken by the Committee in March and September 2021.
Through consideration of reports from, and meetings with, management and the
external auditors, the Committee has reviewed and determined the following:
• judgmental areas and whether revenue recognition and the provisioning
policies have been applied consistently and the level of provisions remains
appropriate
• whether the expected future cash flows of IQE supports the carrying value
of goodwill, and whether there are any triggering events which suggest any
potential impairment of other intangible assets including the valuation of
development intangibles and the capitalisation of development costs
• Going concern and the appropriateness of the disclosure contained within
the significant accounting polices note relating to the application of the going
concern basis of accounting in the financial statements;
• Compliance with financial covenants contained within the Group’s committed
bank facilities and the associated availability of the Group’s bank facilities;
• Goodwill impairment and the growth rates applied in the Wireless and
Photonics value in use calculations that support the carrying value of
goodwill;
• Intangible development cost carrying values and associated markets, end use
applications and customer demand for the technologies which support asset
carrying values;
• Deferred tax asset recognition and the application of the cash flow forecasts
used in the Group’s goodwill impairment review as the starting point for the
assessment and recognition of deferred tax assets; and
• Presentation and disclosure of adjusted profit measures including appropriate
clarity of reconciliation between each GAAP and non
GAAP measure
• whether the presentation of the financial statements, including the
presentation of adjusted performance measures, is appropriate and balanced
External Auditors
Through consideration of reports by independent tax specialists assessing
IQE’s tax affairs in the UK, the US, Taiwan and Singapore as appropriate, and
consideration of reports by and meetings with management assessing current
and deferred tax accounting, the Committee has reviewed and determined
whether the provision for tax liabilities, and the current and deferred tax
accounting is appropriate.
The Committee has reviewed the resources available to IQE, taking account of
IQE’s trading and cashflow forecast together with available funding headroom to
assess the appropriateness of the going concern assumption.
Significant matters relating to the financial
statements
The Committee performs a review of significant matters that relate to the
financial statements. The matters that the Committee considers are significant
are set out below.
56
IQE plc
Annual Report and Financial Statements 2021
The Audit & Risk Committee has developed an auditor independence policy. In
accordance with this policy, the Committee oversees the relationship with the
external auditors and monitors all services provided by them and all fees payable
to them. This is to ensure that potential conflicts of interest are considered and
that an independent, objective and professional relationship is maintained.
The Committee has revised its policy on the provision of non-audit services
by the external auditor in line with the Financial Reporting Council’s Revised
Ethical Standard 2019. From 1 January 2021, the Group implemented a policy
prohibiting the use of the Group’s auditors for the provision of non-audit services.
The nature of the services provided by the external auditors during 2021 and the
amounts paid to them are as detailed:
KPMG LLP
Fees payable to the 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
– Tax and other advisory services
Total KPMG LLP (group auditors)
Ernst and Young (auditors of MBE Technology Pte & CSDC)
– Subsidiary company’s audit
– Tax services
Total Ernst and Young (auditors of MBE Technology Pte & CSDC)
Total
2021
£’000
335
27
20
–
382
2021
£’000
34
9
43
425
2020
£’000
198
27
20
189
424
2020
£’000
27
9
36
470
The Audit & Risk Committee also monitors the effectiveness of the annual audit.
Before the end of the financial year, the Committee receives a detailed audit
plan from the auditors that identifies the auditors’ assessment of the key risks
and their intended areas of focus. This is agreed with the Committee to ensure
that the scope and coverage of audit work is appropriate. IQE’s management
also provide the Committee with feedback on the effectiveness of the audit and
the quality of the audit firm and lead audit partner.
In addition, the Group’s auditors are required to make a formal report to the Audit
& Risk Committee annually on the safeguards that are in place to maintain their
independence and the internal safeguards in place to ensure their objectivity.
IQE does not have an independent internal audit function, however it does
operate internal audit on an ad hoc peer review basis, with a scope of evaluating
and testing IQE’s financial control procedures. The Committee considers that this
remains appropriate for IQE’s size and geographical spread, but the Committee
keeps this under constant review.
In completing its review of the effectiveness of IQE’s system of internal controls
the Audit & Risk Committee has taken account of any material developments up
to the date of the signing of the most recent financial statements. In addition,
recognition is given to the external audit findings, which help to inform the Audit
& Risk Committee’s views of areas of increased risk.
A resolution to reappoint KPMG will be proposed at the forthcoming Annual
General Meeting.
Risk Management
Internal Audit & Controls
The Audit & Risk Committee has reviewed the effectiveness of IQE’s system of
internal controls and risk management activities bi-annually as part of the half
year and full year public reporting.
The system of internal control comprises those controls established in order to
provide assurance that IQE’s assets 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.
The key procedures that IQE has established with a view to providing effective
internal control include the following:
• a clearly defined organisational structure and limits of authority
• corporate policies and procedures for financial reporting and control, project
appraisal, human resources, quality control, health and safety, information
security and corporate governance
• the preparation of annual budgets and regular forecasts which require
approval from 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 IQE’s risks, taking steps to monitor and
mitigate these wherever possible
• where appropriate, taking out insurance cover
• approval by the Audit & Risk Committee of audit plans and, on behalf of the
Board, receipt of reports on IQE’s accounting and financial reporting practices
and its internal controls together with reports from the external auditors as
part of their normal audit work
This process remained in operation for the year under review and as part of
that process, management report any material exceptions to the Audit & Risk
Committee.
The Group Risk Committee was created in 2020 to identify, review, assess
and track IQE’s key risks and mitigating actions. The Group Risk Committee
documents its approach through a risk register which is shared and discussed
with the Audit & Risk Committee.
Key risk management activities performed by IQE are summarised on page 40. The
Committee takes an active role in the risk management process that includes a
regular review of IQE’s risk register and ‘deep dives’ into specific areas of risk.
IQE’s principal risks and uncertainties are set out on pages 41 to 44. While
many of the key risks identified recur from year to year, the relative importance
evolves over time and may require IQE to refocus its assurance activities. In
the year ahead, the Committee will continue to work with the Board, Executive
Leadership Team and other senior management to ensure that there is
appropriate focus on the most significant risk areas together with the associated
plans for mitigating their impact.
Anti-bribery and corruption
IQE maintains a zero-tolerance approach against corruption. It has an
established anti-bribery and corruption policy, which includes guidance on the
giving and receiving of gifts and hospitality. This policy applies throughout IQE’s
business. A Gifts and Hospitality Register is maintained to ensure transparency.
Whistleblowing
IQE operates a confidential reporting mechanism, overseen by IQE’s General
Counsel & Company Secretary, which enables employees to raise concerns
of malpractice, non-compliance or unethical conduct. The options for raising
concerns are widely communicated to employees. These channels are clearly set
out in IQE’s Whistleblowing Policy. IQE’s reporting policy and procedures provide
a framework for protected disclosure.
57
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Nominations Committee
Chair’s Introduction
Phil Smith became Chair of the Nomination Committee
in January 2021 and has overseen a number of
changes to IQE’s Board during 2021.
The Committee successfully lead the search for a
new Chief Executive Officer to succeed Dr Drew
Nelson with Americo Lemos joining IQE on 10 January
2022. Given Drew was founder and CEO and such an
influential figure in the semiconductor industry, it was
vital that we found a replacement who could continue
with that influence and credibility in the industry
whilst bringing new attributes to take IQE to a new
level. We believe we have that with Americo Lemos.
The Committee agreed on the desired experiences
and leadership credentials required for the new Chief
Executive Officer and engaged an external search
firm to assist with the search. The external search
firm had no other connection with IQE and were an
independent provider of services to the Group.
The Committee was also successful in its search for
a new Non-Executive Director in light of Sir David
Grant’s retirement from the Board shortly after
the 2021 AGM. Candidates were sought with the
technical and professional skills to take on Committee
responsibilities, including in particular chairmanship
of the Remuneration Committee. We also sought
candidates who would enhance strategic discussion
in the boardroom. The search led to the appointment
of Victoria Hull who joined IQE as a Non-Executive
Director and Chair of the Remuneration Committee
on 1 August 2021. Victoria brings a real breadth
of experience and skills to the Board from a broad
range of industries. Additionally, she has some sector
and growth experience and hence is a very positive
addition to the Board.
Phil Smith
Committee Chair
29 March 2022
58
IQE plc
Annual Report and Financial Statements 2021
Role of the committee
Meetings and attendance
The Nominations Committee is responsible for leading the process in the
selection and appointment of directors and for ensuring plans are in place for an
orderly succession of Board and senior management positions.
The number of changes to IQE’s Board of Directors through 2021 meant that
the Nominations Committee met frequently and often on an ad hoc basis
throughout 2021. All members attended each meeting.
Key responsibilities
Activities during 2021
• review the structure, size and composition (including the skills, knowledge,
experience and diversity) of the Board and make recommendations to the
Board with regard to any changes
• identify, evaluate and recommend candidates for appointment as directors
• succession planning for directors and other senior management
• review developments in law, regulation and best practice relating to corporate
governance and make recommendations to the board on appropriate action
The Committee was responsible for leading the search for a new Chief
Executive Officer to succeed Dr Drew Nelson and for the appointment of
a new Non-Executive Director in light of Sir David Grant’s retirement from
the Board. The Committee is pleased to have nominated Americo Lemos as
the Group’s new Chief Executive Officer and Victoria Hull as Non-Executive
Director and Chair of the Remuneration Committee. The Committee
continues to review the skills, experience and diversity on the Board.
Membership
Phil Smith – Chair
Carol Chesney
Derek Jones
Victoria Hull
59
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IQE plc
Annual Report and Financial Statements 2021
On behalf of the Board, I am pleased to present IQE’s
Directors’ Remuneration Report for 2021. This is my
first report as Chair of the Remuneration Committee
since stepping into the role on 18 September 2021. I
would like to take this opportunity to thank Sir David
Grant for his valuable contribution to IQE and the
Remuneration Committee prior to his retirement from
the Board in September last year.
Reported financial performance in 2021 was
significantly impacted by foreign exchange headwinds,
caused by the relative strength of Sterling versus
the US Dollar, with the majority of IQE’s revenues
denominated in US Dollars. IQE also experienced
a softening of demand in Q4 2021. As a result, the
Group’s full year revenues for 2021 were £154m
with an operating loss of £20m, representing a 13%
reduction in revenues year-on- year.
The Committee will always seek to ensure that the
remuneration of IQE’s Executive Directors reflects
the underlying performance of the business. The
Committee determined that no bonuses would be paid
to the Executive Directors for performance in 2021 and
that there would be no increases in salary. The LTIP
awards granted to the previous Chief Executive Officer
and the Chief Financial Officer in 2019 will lapse in
their entirety at the end of March 2022 because the
applicable performance conditions were not met.
I hope that you find the Remuneration Report
to be clear in explaining the implementation of
our Remuneration Policy in 2021. I value greatly
engagement with IQE’s shareholders and other
stakeholders and welcome your feedback on this
Directors’ Remuneration Report.
I hope you will be supportive of the resolution
providing an advisory vote on the remuneration report
for 2021. I look forward to our AGM in June 2022.
Victoria Hull
Non-Executive Director and Chair of the
Remuneration Committee
29 March 2022
Remuneration at a glance
Purpose and link to strategy
Key features
Planned for 2022
Implementation in 2021
Supports the attraction and
retention of the best global talent
with capability to deliver IQE’s
strategy
Salaries take account of external
market and internal employee
context
Reviewed annually
Effective 1 January 2022:
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Provision of market-competitive
and cost-effective benefits to
support attraction and retention
of talent
Provision of competitive benefits
linked to local market practice
Maximum company pension
contribution is 10% of salary
Incentivises delivery of IQE’s
financial and strategic targets.
Target opportunity is 50% of salary
and maximum is 120% of salary
Provides focus on key financial
metrics and the individual’s
contribution to IQE’s performance
Rewards long-term performance in
line with IQE’s strategy
Provides focus on delivery long
term returns to shareholders
Performance measures, weightings
and stretching targets set annually
Paid out in cash after end of the
financial year, save that any payout
above 100% of salary will be made
in the form of share grant
Subject to malus and clawback
provisions
Annual awards under IQE’s LTIP:
• CEO 150% of salary
• CFO 150% of salary
Maximum annual awards of up
to 200% of salary in exceptional
circumstances, such as recruitment
3-year performance period
Performance measures, weightings
and stretching targets reviewed
annually
Subject to malus and clawback
provisions
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Ensures alignment between the
interests of Executive Directors and
shareholders
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Minimum shareholding
requirements:
• CEO 200% of salary
• CFO 200% of salary
New joiners given time to reach
threshold and not expected to
self-fund
• CEO £575,000*
• CFO £369,706 (no increase)
Average salary increase for wider
workforce of around 2%
*Americo Lemos joined IQE as CEO on 10
January 2021
Company pension contribution:
• CEO 10% of salary
• CFO 10% of salary
The 10% pension contribution is
consistent with that available to the
wider workforce
For the year ending 31 December
2022, the maximum opportunity
remains 120% of salary for both the
CEO and the CFO. The performance
measures are EBITDA (weighted
40%), revenue (15%), operating
cash flow (15%), and personal and
strategic objectives (30%).
In line with the recruitment policy,
Americo Lemos was granted an
exceptional award under the LTIP
on joining IQE equal to 200% of
his salary. The CFO will receive an
award of 150% of salary.
For the 3-year performance period
ending 31 December 2024, the
performance measures are EPS
(weighted 40%), relative TSR (15%),
absolute TSR (15%), revenue (10%)
and strategic objectives (20%).
25% of the award will vest at
threshold, increasing on a straight-
line basis to 100% for stretch.
There is nil vesting below the
threshold level
2% salary increases for the previous
CEO and the CFO
In line with approach for wider
workforce
Allowances and benefits
unchanged from prior year. CEO
and CFO pension contributions 10%
of salary
The 2021 annual bonus payout for
both the previous CEO and the CFO
was nil
The awards granted to the previous
CEO and the CFO in 2019 lapsed
as the applicable performance
conditions were not met
CEO shareholding 69% of salary.
CFO shareholding 0% of salary.
Tim Pullen joined IQE at the start
of 2019
61
Where innovation startsCorporate Governance
Directors’ Remuneration Policy
IQE aims to attract, retain and motivate high calibre executives, whilst recognising the need to be cost effective, and to incentivise significant industry out-
performance. The Remuneration Committee established a remuneration policy that balances these factors, taking account of investor feedback and prevailing best
practice. This section of the Directors’ Remuneration Report sets out the Policy for Executive Director remuneration which was adopted at the start of 2020.
Function
Operation
Opportunity
Performance metrics
Base salary
To recognise the individual’s skills
and experience and to provide a
competitive total package.
Base salaries are reviewed annually, with
reference to market levels, individual
contribution, the experience of each
Executive and increases across the
Group. Any adjustments become effec-
tive on 1 April.
Pension
To provide an opportunity for
executives to build up income on
retirement.
All Executives are members of the
Group pension scheme and/or receive
a cash pension allowance. Salary is the
only element of remuneration that is
pensionable.
Benefits
To provide non-cash benefits which
are competitive in the market in
which the executive is employed.
Executives receive benefits which
consist primarily of health cover, private
medical insurance, life assurance, long-
term disability insurance and reimburse-
ment for fuel, although may include
other benefits that the Remuneration
Committee deems appropriate in the
circumstances.
Annual Bonus
To incentivise and reward strong
performance against financial
and personal annual targets, thus
delivering value to shareholders and
being consistent with the delivery of
the strategic plan.
Performance measures, targets and
weightings are set at the start of the
year.
The scheme is based on a combination
of financial performance and personal
objectives. At the end of the year, the
Remuneration Committee determines
the extent to which the financial perfor-
mance targets and personal objectives
have been achieved.
Bonus payments up to 100% of salary
are delivered in cash or in the form of
stock grants.
Clawback (of any bonus paid) may be
applied during employment or for 2
years post-termination in the event of
gross misconduct, material financial
misstatement, error in calculation of
outcomes or in any other circumstance
that the Remuneration Committee
considers appropriate.
n/a
Any base salary increases are applied in
line with the outcome of the
Remuneration Committee’s review.
In respect of existing Executive Directors,
it is anticipated that salary increases will
generally be in line with those of salaried
employees as a whole. In exceptional
circumstances (including, but not limited
to, a material increase in job size or com-
plexity, material market
misalignment) the Remuneration
Committee has discretion to make
appropriate adjustments to salary levels
to ensure they remain appropriate.
Executive Directors receive a pension
contribution of 10% of salary or an
equivalent cash allowance. This aligns
with the pension arrangements for IQE’s
employees where employee contribu-
tions are ‘double-matched’ up to a limit
of a 10% contribution from IQE.
Benefits may vary according to role and
individual circumstances. Eligibility to
benefits and the cost of benefits are
reviewed periodically.
n/a
n/a
The Remuneration Committee retains
discretion to approve a higher cost in
exceptional circumstances (e.g. reloca-
tion or expatriation) or in circumstances
where market rates have changed (e.g.
cost of insurance cover).
For Executive Directors, the maximum
annual bonus opportunity will be 120%
of base salary.
The bonus pays 0% at Threshold, 50%
at Target and 100% at stretch, with
straight-line vesting between these
levels.
Any bonus earned over 100% of base
salary would be paid in the form of
share grants.
Performance is assessed on an annual
basis against financial and personal/
strategic objectives set at the start of
each year.
Financial measures will be weighted
appropriately each year according to
business priorities, and will represent
no less than 70% of the annual plan.
Performance vs. targeted levels will be
measured at budgeted FX rates.
Personal/strategic objectives will
represent no more than 30% of the
maximum opportunity and will be set
annually to capture expected individual
contributions to IQE’s strategic plan. The
personal element will be restricted to
15% of the maximum opportunity in the
event the thresholds for two out of the
three relevant financial measures are
not met.
The Remuneration Committee has
discretion to adjust formulaic bonus
outcomes to ensure fairness for
shareholders and participants, to
ensure pay aligns underlying company
performance, and to avoid unintended
outcomes. These adjustments can be
either upwards (within plan limits) or
downwards (including down to zero).
The Remuneration Committee may
consider measures outside of the bonus
framework to ensure there is no reward
for failure. Any adjustment would be
carefully considered and fully explained
in the Annual Report on Remuneration.
Further details of the measures, weight-
ings and targets applicable are provided
on page 66 in the Annual Report on
Remuneration.
62
IQE plc
Annual Report and Financial Statements 2021
Function
Operation
Opportunity
Performance metrics
LTIP
To drive sustained long-term
performance that supports the
creation of shareholder value.
The LTIP provides for normal awards of
up to 150% of salary.
In exceptional circumstances, including
but not limited to recruitment, normal
awards may be made up to 200% of
salary to secure the right individual.
Up to 25% of the LTIP will be paid for
achieving Threshold performance,
increasing on a straight-line basis to full
vesting for achieving Stretch perfor-
mance.
Under the long-term incentive plan
(LTIP) annual awards of shares or nil-cost
options may be made to participants.
Award levels and performance condi-
tions are reviewed before each award
cycle to ensure they remain appropriate.
The Committee has the discretion to
authorise a payment, in shares, equal to
the value of dividends which would have
accrued on vested shares during the
vesting period.
Malus (of any unvested LTIP) and
clawback (of any vested LTIP) may be
applied during employment or for 2
years post-termination in the event of
gross misconduct, material financial
misstatement, error in calculation of
outcomes or in any other circumstance
that the Remuneration Committee
considers appropriate.
Vesting of LTIP awards is subject to
achieving performance conditions and
continued employment. LTIP awards
to Executive Directors have the same
vesting period as those issued to IQE’s
other employees, being measured over
three consecutive financial years.
The Remuneration Committee has
limited discretion to change the perfor-
mance conditions and cannot make any
performance condition materially easier
to satisfy without shareholder approval.
If no entitlement has been earned at the
end of the relevant performance period,
awards lapse.
The Remuneration Committee has
discretion to adjust outcomes to ensure
they fairly reflect underlying perfor-
mance. The Remuneration Committee
also considers environmental, social,
governance and health and safety
criteria, to ensure there is no reward
for failure.
Notes to the policy table
Performance measure selection and approach to target setting
The measures used under the annual bonus plan are selected annually to reflect IQE’s main objectives for the year and reflect both financial performance and
personal contributions to delivering the strategic plan. The performance conditions for new LTIP awards are selected to reflect IQE’s long-term objectives which
support the creation of shareholder value.
In terms of the performance conditions for the LTIP, the Remuneration Committee considers Fully Diluted Adjusted Earnings per Share (‘EPS’) to be a key measure
of IQE’s long-term bottom line performance, while Total Shareholder Return (‘TSR’) is a measure which strongly aligns management and shareholder interests. The
Remuneration Committee also considers that it is appropriate to include performance conditions which look at absolute revenue growth and the achievement of
IQE’s strategic objectives. Targets applying to the bonus and new LTIP awards are reviewed annually, based on a number of internal and external reference points.
Performance targets are intended to be stretching and achievable, and reflect IQE’s strategic priorities and its market opportunities.
Remuneration policy for other employees
All employees are eligible to participate in a discretionary annual bonus and receive awards under the LTIP.
Shareholding guidelines
The Remuneration Committee wishes to encourage Executive Directors to build up a significant shareholding in the Company. Shareholding guidelines are therefore
in place to require Executive Directors to acquire a shareholding (excluding shares held conditionally pursuant to LTIP performance) equivalent to 200% of base
salary. 50% of any shares vesting (post-tax) under the new LTIP are required to be held until the relevant shareholding level is achieved. Executive Directors are
expected to build up the required shareholding within five years of appointment to the Board, although the Remuneration Committee will exercise appropriate
discretion where Executive Directors have been impeded from building up the requisite shareholding due to business performance. Details of the Executive
Directors’ current shareholdings are provided in the Annual Report on Remuneration at page 55.
Non-Executive Director remuneration
Non-Executive Director
Date of appointment letter
Remuneration per annum
Phil Smith
Sir Derek Jones
Carol Chesney
Victoria Hull1
Andrew Nelson
Sir David Grant2
30 November 2016
1 December 2017
13 May 2019
16 July 2021
30 October 2021
1 September 2012
£125,000
£50,000
£50,000
£50,0001
£75,000
£50,000
1 Victoria Hull was appointed to the Board on 1 August 2021
2 Sir David Grant retired from the Board on 18 September 2021
Subject to re-election by shareholders, Non-Executive Directors are appointed by the full Board and retire annually in accordance with the Company’s Articles of
Association. The remuneration of Non-Executive Directors are matters reserved for the full Board, subject to an individual limit of £150,000 per annum or such other
figure as shareholders may approve plus reasonable expenses in accordance with the Company’s Articles of Association.
The Non-Executive Directors are not eligible to participate in IQE’s performance related bonus plan, long-term incentive plans or pension arrangements. Copies of
the Non-Executive Directors’ appointment letters are available for inspection at the Company’s registered office during normal business hours.
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Americo Lemos
Tim Pullen
£2,800k
£2,313k
£1,237k
£649k
£1,561k
£1,326k
£753k
£415k
Minimum
On
Target
Stretch
Stretch
50%
Minimum
On
Target
Stretch
Stretch
50%
Fixed Pay
Annual Bonus
LTIP
* LTIP value calculated based on market value of the options at the date of grant less the nominal grant price
The ‘Minimum’ scenario comprises fixed remuneration, i.e. base salary, pension, and benefits, which are the elements of the remuneration package not linked to
performance. The figures for base salary and pension (10% of salary) are as of 1 January 2022, while those for taxable benefits are based on the latest single figure
table for 2021. The ‘On-Target’ scenario reflects fixed remuneration as above, plus a target bonus payout of 50% of maximum and threshold vesting for the LTIP
of 25% of maximum. The ‘Stretch’ scenario reflects fixed remuneration, plus full payout of the annual bonus (120% of salary) plus full vesting of the normal LTIP of
150% of salary (200% of salary for Americo Lemos, for 2022 only). The ‘Stretch + 50%’ reflects the ‘Stretch’ scenario plus an assumed 50% share price appreciation
over the LTIP performance period.
Approach to recruitment remuneration
External appointments
In the cases of hiring or appointing a new Executive Director from outside the Company, the Remuneration Committee may make use of all the existing components
of remuneration, as follows:
Component
Base salary
Pension
Benefits
Annual Bonus
LTIP
Approach
Maximum annual grant value
The base salaries of new appointees will be
determined by reference to relevant market data,
experience and skills of the individual, internal
relativities and current basic salary. Where new
appointees have initial basic salaries set below
market, any shortfall may be managed with phased
increases over multiple years subject to the individual’s
development in the role.
New appointees will receive pension contributions
or an equivalent cash supplement in line with
existing policy.
New appointees will be eligible to receive benefits
which may include (but are not limited to) those
outlined in the policy table.
The structure described in the policy table will
apply to new appointees with the relevant
maximum being pro-rated to reflect the
proportion of employment over the year. Targets
for the personal element will be tailored to each
executive.
New appointees will be granted awards under the
LTIP on the same terms as other executives, as
described in the policy table.
In line with normal annual limit
Up to 200% of salary on appointment; in line with
normal annual limit thereafter
In determining the appropriate remuneration for a new executive director appointee, the Remuneration Committee will take into consideration all relevant factors
(including nature and quantum of each component of remuneration and the jurisdiction from which the candidate was recruited) to ensure that arrangements are
in the best interests of IQE and its shareholders. The Remuneration Committee may make an award in respect of a new appointment to ‘buy out’ remuneration
arrangements forfeited on leaving a previous employer on a like-for-like basis, which may be awarded in addition to the ongoing remuneration elements outlined in
the table above. In doing so, the Remuneration Committee will consider relevant factors, including time to vesting, performance conditions attached to awards, and
the likelihood of these conditions being met. Any ‘buy-out’ awards will typically be made under the existing annual bonus and LTIP schemes, although in exceptional
circumstances the Remuneration Committee may exercise the discretion available under Listing Rule 9.4.2 R to make awards using a different structure. Any ‘buy-
out’ awards would have a fair value no higher than the awards forfeited. The Remuneration Committee will take advice from independent remuneration consultants
on the structure and award package for a new Executive Director.
64
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Annual Report and Financial Statements 2021
Internal appointments
In the case an internal promotion to the Board, the Remuneration Committee will use the same policy as detailed above, although there will be no opportunity for a
buyout. However, where an individual has contractual commitments made prior to their promotion to Executive Director level, the Company will continue to honour
these arrangements.
Non-Executive Directors
In recruiting a new Non-Executive Director, the Remuneration Committee will utilise the policy as set out on pages 62 & 63.
Service contracts and treatment for leavers and change of control
Executive
Mr Americo Lemos
Mr Tim Pullen
Date of service contract
10 January 2022
4 February 2019
Executive Director service contracts, including arrangements for early termination, are carefully considered by the Remuneration Committee. Each of the Executive
Directors has a rolling service contract requiring 6 months’ notice of termination on either side. Such contracts contain no specific provision for compensation for
loss of office, other than an obligation to pay for any notice period waived by the Company, where pay refers to salary, benefits and pension only. Executive Directors’
service contracts are available to view at the Company’s registered office.
When considering exit payments, the Remuneration Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders and
participants. The table below summarises how the awards under the annual bonus and LTIP are typically treated in different circumstances, with the final treatment
remaining subject to the Remuneration Committee’s discretion:
Reason for leaving
Calculation of vesting / payment
Annual bonus
Resignation
‘Good leaver’1
Change of control
No annual bonus payable.
Cash bonuses will typically be paid to the extent that performance objectives have been met. Any resulting
bonus will typically be pro-rated for time worked. The Remuneration Committee retains discretion to vary this
treatment in individual circumstances.
Resignation
Outstanding awards lapse
LTIP
‘Good leaver’1 and change of control
The Committee determines whether and to what extent outstanding awards vest based on the extent to
which performance conditions have been achieved and the proportion of the vesting period worked. The
Remuneration Committee retains discretion to vary this treatment in individual circumstances.
The determination of vesting will be made as soon as reasonably practical following the end of the performance
period or such earlier date as the Remuneration Committee may agree (within 12 months in the event of
death).
In the event of a change of control, awards may alternatively be exchanged for new equivalent awards in the
acquirer where appropriate.
1A ‘good leaver’ is a participant ceasing to be employed by the Group by reason of death, disability, ill health, retirement in agreement with the Company or any other reason that the
Committee determines in its absolute discretion.
External appointments
With the approval of the Board in each case, and subject to the overriding requirements of the Group, Executive Directors may accept external appointments as Non-
Executive Directors of other companies and retain any fees received. None of the Executive Directors received any remuneration from external directorships during
the year.
Consideration of conditions elsewhere in the company
When making decisions on changes to Executive Director remuneration, the Remuneration Committee considers changes to pay and conditions across the Group. To
this end, the Remuneration Committee receives a summary of the proposed level of average increase for employees prior to the annual salary review. For Executive
Directors, the Remuneration Committee does not formally consult with employees on the executive remuneration policy and implementation.
Consideration of shareholder views
The Remuneration Committee maintains a regular dialogue with the Company’s major shareholders. Following the 2019 AGM, IQE Management consulted with
shareholders regarding the concerns raised regarding the adoption of the new all employee LTIP plan. IQE has made the necessary changes to the administration of
the LTIP to align leaver provisions for all employees to those set out for the Executive Directors. ‘Good Leavers’ will receive a pro-rated reduction to vesting based on
performance and the portion of the vesting period expired up to the time of the termination of employment. The Committee maintains a view of the commitments
to issue shares under the LTIP as a percentage of the issued share capital in any rolling 10-year period, acknowledging the Investment Association principles
recommending a 10% limit and the report from the Institutional Shareholder Service in connection with the adoption of the LTIP in 2019. The LTIP currently allows
for a maximum dilutive effect of 15%. The dilutive effect of commitments issued under the LTIP is declining year on year and the Committee is confident that this will
fall below the recommended 10% limit in the next few years.
65
Where innovation startsCorporate Governance Annual Report on Remuneration
Role of the Committee
The Remuneration Committee has responsibility for determining the policy for Executive Director remuneration and setting remuneration for the Company Chair and
Executive Directors.
Key responsibilities
• recommending the remuneration policy for Executive Directors, whilst considering the remuneration for the Executive Leadership Team and remuneration policies
for employees below the Board
• approving the principles of IQE’s LTIP and the parameters, including performance conditions, for the annual awards under the LTIP
• maintaining appropriate dialogue with shareholders on remuneration matters
• preparing the annual remuneration report to shareholders to show how the remuneration policy has been implemented.
Membership
Victoria Hull – Chair
Phil Smith
Derek Jones
Carol Chesney
Meetings and attendance
The Remuneration Committee met twice in 2021. All members attended each meeting. The Chief Executive Officer and Chief Financial Officer attended meetings
to present proposed performance ratings for the Executive Directors and Executive Management Board and remuneration policies principles for the workforce.
The Chief Executive Officer and Chief Financial Officer did not attend those parts of the Committee meetings relating to the Committee’s decisions on their own
performance and remuneration.
Remuneration Committee role, membership and advice
The primary role of the Remuneration Committee is to determine and agree with the Board fair and reasonable remuneration arrangements for the Chairman and
Executive Directors.
The main activities of the Remuneration Committee during the year were as follows:
• evaluated the performance of the Chief Executive Officer and Chief Financial Officer
• determined annual bonuses payable to Executive Directors and the Executive Leadership Team in 2021;
• determined basis of salary increases for IQE’s employees, including the Executive Directors and the Executive Leadership Team
• evaluated the proposed awards under the Company’s LTIP;
• reviewed and approved performance conditions for LTIP awards;
• reviewed and approved the Executive Directors’ salaries for 2022;
• determined performance targets for the Executive Directors’ 2022 annual bonus and LTIP awards in line with IQE’s strategic plan;
• evaluated revisions to IQE’s LTIP and cash bonus schemes for employees
• considered proposed workforce policies on performance rating and proposed policy for workforce pay increases
• drafted the Directors’ Remuneration Report;
• considered benchmarking and advice from independent remuneration consultants, Mercer | Kepler.
The Remuneration Committee’s Terms of Reference are set out on the Company’s website at www.iqep.com.
During the year, the Remuneration Committee comprised all of the Non-Executive Directors. The number of meetings held during 2021 by the Remuneration
Committee and attendance by the individual Committee members at such meetings is set out in the Board Report on page 47.
Mercer | Kepler provides independent advice to the Remuneration Committee. Mercer | Kepler is a signatory to the Code of Conduct for Remuneration
Consultants in the UK, operated by the Remuneration Consultants Group, and which requires all advice to be objective and independent (see www.
remunerationconsultantsgroup.com for more information). Services provided by Mercer | Kepler included advice on remuneration packages for executives,
assistance with a review of incentive arrangements and support on drafting this Directors Remuneration Report, as well as other ad-hoc advice on remuneration.
Fees of £18,500 inclusive of VAT were paid to Mercer | Kepler in respect of services it provided to the Company in 2021. The Committee considers that Mercer |
Kepler is independent, does not have any connections with IQE that may impair their independence, and does not provide any services to the Group other than its
advice on remuneration.
66
IQE plc
Annual Report and Financial Statements 2021
Board changes
There were a number of Board changes during 2021 and at the beginning of 2022.
Dr Andrew Nelson completed his transition from CEO on 30 October 2021, and became a non-independent Non-Executive Director and President on the same date.
He received salary, benefits, and pension for his executive role in respect of the period 1 January to 30 October 2021, as set out in the single figure table below. He
will continue to receive pay in lieu of notice, in line with the terms of his employment contract, until April 2022, totalling £274,600.86. He did not receive a bonus
for 2021 and no LTIP award vested to him as the applicable performance targets were not met. His outstanding LTIP awards will continue in effect, albeit with a pro
rata reduction to reflect time served in his executive role and the extent of any vesting will be determined at the end of the relevant performance period. Dr Andrew
Nelson receives an annual fee of £75,000 in his new role as a Non-Executive Director and President.
Americo Lemos was appointed as CEO on 10 January 2022. His salary is £575,000, and he receives benefits and pension in line with the remuneration policy. He
is eligible for an annual bonus of up to 120% of salary, subject to the normal performance targets, and he received an exceptional award under the LTIP of 200%
of salary in 2022, again subject to the normal performance targets. It is anticipated that from 2023, Americo’s LTIP award will be 150% of salary. Over the first 12
months of his employment, Americo will also receive a buyout award in respect of remuneration foregone at his previous employer with a value equal to £1,000,000,
comprising a cash bonus totalling £800,000 and an award of 583,709 shares, worth £200,000. The buyout award is not subject to any performance conditions,
though malus and clawback provisions apply.
Phil Smith, the Non-Executive Chair, took on an executive role for the period 7 September 2021 to 9 January 2022 to support the transition from the previous CEO to
the new CEO. For this period only, Phil received a total fee on a per diem rate of £2,750.
Sir David Grant retired from the Board on 18 September 2021. Victoria Hull was appointed as an Non-Executive Director on 16 July 2021, and receives an annual fee
of £50,000.
Single total figure of remuneration for Executive Directors (audited information)
The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended 31 December 2021 and the prior year:
Salary
Benefits3
Starting Bonus
Pension6
Total fixed
Annual bonus4
Long-term incentive5
Total variable
Total Executive Remuneration
Non-executive fees
Total Director Remuneration
Dr. Andrew Nelson1
2021
£’000
450
7
–
50
507
–
–
–
507
13
520
2020
£’000
538
7
–
54
599
511
–
511
1,110
–
1,110
Mr Tim Pullen
2021
£’000
368
11
25
37
441
–
–
–
441
–
441
2020
£’000
363
11
131
36
541
344
–
344
885
–
885
Mr Phil Smith2
2021
£’000
2020
£’000
97
–
–
–
97
–
–
–
97
125
222
–
–
–
–
–
–
–
–
–
125
125
11Dr Andrew Nelson is entitled to payments in lieu of notice totalling £275,000 that are payable in six equal monthly instalments over a period commencing from the date of his retirement as
Chief Executive Officer on 31 October 2021.
2Mr Phil Smith’s executive remuneration relates to the period subsequent to his appointment as Executive Chairman on 7 September 2021. Non-executive fees relate to Mr Phil Smith’s role
as Non-Executive Chairman prior to 7 September 2021.
3Benefits consist of health cover, private medical insurance, life assurance, long term disability insurance, fuel and car repairs.
4Annual bonus payable in cash.
5No LTIPs vested.
6Executive Directors are entitled to participate in a defined contribution scheme, in relation to which the Company contributes 10% of salary or equivalent cash allowance.
Incentive outcomes for year ending 31 December 2021
Annual Bonus
The annual bonus for 2021 was determined by a combination of cash, revenue and profit targets and non-financial personal/strategic targets. The Committee set
stretching performance targets for 2021 which were linked to the strategy and financial performance of the Group. Financial performance for 2021 was below
expectations which meant that there was no annual bonus for the Chief Executive Officer or the Chief Financial Officer.
The Committee is satisfied the policy has operated as intended and has concluded that there are no circumstances arising where it would need to exercise discretion
to adjust any of the variable pay outcomes.
Long-term incentive plan
966,246 LTIP options awarded to Andrew Nelson and 699,814 LTIP options awarded to Tim Pullen, both in 2019, have not satisfied the applicable performance
criteria and have lapsed.
67
Where innovation startsCorporate Governance Percentage change in CEO remuneration
The table below shows the percentage change in CEO remuneration from the prior year compared to the average percentage change in remuneration for other
employees. The CEO’s annual remuneration includes base salary, taxable benefits and annual bonus. The % change in annual remuneration for other employees is
calculated using the increase in the earnings of all employees who were employed in the UK throughout 2020 and 2021. The Committee considers the UK employee
population to be the most appropriate comparison for CEO vs. other employee pay, as all executive directors are currently employed in the UK, our UK employee
population includes employees at all levels of the organisation, and pay inflation in our other geographies is affected by different local market factors.
Salary
Pension
Benefits
Annual bonus
Total
Dr. Andrew Nelson1
2020
£’000
538
54
7
511
1,110
2021
£’000
463
50
7
–
520
Increase
%
-16.2%
-7.9%
0.0%
n/a
All UK Employees
2020
£’000
5,438
–
39
–
2021
£’000
5,833
–
53
–
5,886
5,477
Increase
%
7.3%
n/a
36.1%
n/a
1Dr Andrew Nelson’s executive remuneration relates to the period prior to his retirement as Chief Executive Officer on 31 October 2021. His salary includes executive and non-executive
remuneration (salary and fees) but excludes payment in lieu of notice (£275,000).
Relative importance of spend on pay
The graph below shows shareholder distributions (i.e. dividends and share buybacks), total employee pay expenditure and investment in capital expenditure,
research & development and intangibles for the financial years ended 31 December 2020 and 31 December 2021, along with the year-on-year percentage change.
m
£
50
40
30
20
10
0
5.3%
76.8%
Employee
Remunera�on Costs
n/a
Distribu�on to
shareholders
2021
2020
Investment in Capex,
R&D and intangibles
Review of past performance
The following graph charts the Total Share Return (‘TSR’) of the Company and the FTSE AIM Index (to which IQE is a member) over the period from 1 January 2016 to
31 December 2021. The table below details the Chief Executive’s “single figure” remuneration over the same period.
Historical TSR performance
)
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T
900
800
700
600
500
400
300
200
100
0
Jan-16
Jan-17
Jan-18
IQE
Jan-19
Jan-20
AIM All Share
Jan-21
Historical CEO remuneration
CEO single figure of remuneration (£000)
STI award as a % of maximum opportunity
LTI award as a % of maximum opportunity
2017
1,087
100%
n/a
2018
3,683
20%
62%
2019
599
0%
0%
2020
1,110
79%
0%
20211
507
0%
0%
1Dr Andrew Nelson’s executive remuneration relates to the period prior to his retirement as Chief Executive Officer on 31 October 2021.
68
IQE plc
Annual Report and Financial Statements 2021
Scheme interests awarded in 2021 (audited information)
Executive director
Dr Andrew Nelson
Mr Tim Pullen
Award type
Date of award
# shares awarded
Face value
End of performance period
Nil-cost option
1 January 2021
1,118,938
Nil-cost option
1 January 2021
753,236
£807,649
£543,686
31 December 2023
31 December 2023
The face value of the shares awarded was based on the share price as at the date of award, being 73.18p as at 1 January 2021, less the 1p nominal value exercise
price.
Vesting of 60% of the awards are subject to absolute justified dilutive EPS targets as illustrated on the chart below where EPS is measured at 31 December 2023.
Vesting of 40% of the awards are subject to absolute TSR targets as illustrated on the chart below where TSR is measured over the three years 31 December 2023.
l
y
r
a
a
S
%
100
90
80
70
60
50
40
30
20
10
0
0.50
0.55
0.60
0.65
0.70
0.75
0.80
>0.80
EPS
l
y
r
a
a
S
%
100
90
80
70
60
50
40
30
20
10
0
100%
110%
120%
TSR
130%
>130%
Exit payments made in the year (audited information)
Dr Andrew Nelson is entitled to payments in lieu of notice totalling £275,000 that are payable in six equal monthly instalments over a period commencing from the
date of his retirement as Chief Executive Officer on 31 October 2021.
Payments to past Directors
Payments made to past directors totalled £82,500 (2020: £75,000) and reflect on-going services received from Dr Howard Williams following his retirement from the
Board in 2019.
Single total figure of remuneration for Non-Executive Directors (audited information)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended 31 December 2021 and the prior year:
Phil Smith
Mrs Carol Chesney
Sir Derek Jones
Andrew Nelson2
Victoria Hull3
Sir David Grant4
NED fees
2021
£’000
125
50
50
13
21
41
2020
£’000
125
50
50
n/a
n/a
50
Other
2021
£’000
97
Nil
Nil
n/a
Nil
Nil
2020
£’000
Nil
Nil
Nil
n/a
Nil
Nil
Total
2021
£’000
222
50
50
13
21
45
2020
£’000
125
50
50
–
–
50
1Phil Smith took on an executive role for the period 7 September 2021 to 9 January 2022 to support the transition from the previous CEO to the new CEO. Other in the table above reflects the
additional fees that Phil Smith received over the period 7 September to 31 December 2021 to reflect the additional time commitment associated with his executive role during this period
2Dr Andrew Nelson was appointed as President and Non-Executive Director on 30 October 2021 following his transition from CEO. The fees shown in the table above relate to his non- executive
role in respect of the period 1 November to 31 December 2021
3Mrs Victoria Hull was appointed to the board as an independent non-executive director on 1 August 2021. The fees shown in the table above relate to her service in respect of the period 1
August to 31 December 2021
4Sir David Grant retired from the board on 18 September 2021. The fees shown in the table above relate to his service in respect of the period 1 January to 18 September 2021
69
Where innovation startsCorporate Governance
Implementation of remuneration policy for 2022
Base salary
The Remuneration Committee: determined that no increase in salaries would be awarded for 2022.
Executive Director
Americo Lemos1
Tim Pullen
Annual base salary at
1 January 2021
Annual base salary at
1 January 2022
Percentage increase
£369,706
N/A
£369,706
NIL
1 Americo Lemos was appointed as the Group’s CEO on 10 January 2022 on a salary of £575,000.
Pension
Executive Directors are entitled to a pension contribution of 10% of salary or equivalent cash allowance. The typical employee pension contribution is up to 10% of
salary.
Annual bonus
For 2022, the Executive Directors will have the opportunity to receive a cash bonus to be paid after the announcement of full year results for 2022, based on a mix
of financial measures for the 2022 financial year and agreed personal and strategic objectives: EBITDA (weighted 40% of the maximum opportunity), revenue (15%),
operating cash flow (15%), and personal and strategic objectives (30%).
Each measure has a threshold, on-target, and stretch target approved by the Board of Directors in at the time of Budget approval. Threshold and on-target
performance will result in a bonus payment of 0% and 50% of the maximum opportunity, respectively. The maximum bonus payout will be 120% of base salary if all
stretch targets are met. Any payout above 100% of salary will be made in the form of a share grant, calculated based on the average of the share price on the three
days preceding the date of the Annual Results Announcement.
There will no bonus for the financial element of the bonus if threshold EBITDA is not satisfied. In the event of zero payout for financial performance, the maximum
payout for personal and strategic measures will be restricted to 50% of the maximum bonus amount for that element.
LTIP
For 2022, the CEO received an award of 200% of salary on appointment (as part of his buyout), and the CFO will receive an award of 150% of salary, in line with the
policy. 40% of the award will vest on EPS performance, 15% on relative TSR performance vs. the FTSE All-Share Index, 15% on absolute TSR performance, 10% on
revenue growth, and 20% on strategic objectives. The performance targets for the financial and TSR measures are set out below.
Performance measure
Weighting (% of award)
Threshold (25% vesting)
Stretch (100% vesting)
EPS (IQE plc’s Fully Diluted Adjusted
Earnings per Share achieved for the
year ended 31 December 2024)
Relative TSR vs. FTSE All-Share Index
Absolute TSR
Revenue growth
Strategic scorecard
40%
15%
15%
10%
20%
0.60
1.00
TSR equal to Index
TSR equal to Index+30% over the period
8% p.a.
10% p.a.
16% p.a.
20% p.a.
Targets are deemed commercially sensitive
and will be disclosed at vesting
No award will vest below Threshold performance, and vesting will increase on a straight-line basis between Threshold and Stretch.
70
IQE plc
Annual Report and Financial Statements 2021
Directors’ interests
A table setting out the beneficial interests of the Directors and their families in the share capital of the Company as at 31 December 2021 is set out below.
Since 1 January 2021 there have been the following changes in Directors’ interests in shares.
2021
Americo Lemos1
Tim Pullen
Phil Smith
Carol Chesney
Dr Andrew Nelson
Derek Jones
Victoria Hull
Sir David Grant
Shares owned as at
1 Jan 2021
Shares owned as at
1 Jan 2022
Shareholding requirement
% salary/fee
Current shareholding %
salary/fee
–
–
–
–
–
–
40,000
40,000
36,190,417
36,190,417
–
–
–
–
215,000
215,000
200%
200%
N/A
N/A
N/A
N/A
N/A
N/A
34%
0%
N/A
N/A
N/A
N/A
N/A
N/A
1 Americo Lemos was appointed as the Group’s CEO on 10 January 2022
Executive Directors are expected to build up a shareholding of 200% of salary within five years of appointment to the Board.
As first announced on 6 August 2019, Andrew Nelson has entered into a sale and repurchase agreement with Equities First Holdings pursuant to which 12,121,711 Ordinary Shares are held
subject to the Agreement. Andrew Nelson, including persons closely associated with him, maintained a beneficial interest in 36,190,417 Ordinary Shares, representing approximately 4.52% of
the Company’s issued share capital.
Share Options (audited information)
2021
Dr Andrew Nelson
Tim Pullen
2020
Dr Andrew Nelson
Tim Pullen
Unvested
and subject
to continued
performance
2,899,470
1,850,483
Unvested
and subject
to continued
performance
2,746,778
1,797,061
Unvested
and subject
to continued
employment
–
–
Unvested
and subject
to continued
employment
–
–
Vested but
unexercised Vested during year Lapsed during year
Exercised during
year
–
–
–
–
966,246
699,814
Nil
Nil
Vested but
unexercised Vested during year Lapsed during year
Exercised during
year
–
–
–
–
462,846
–
–
–
Summary of shareholder voting at the 2021 AGM
Results of the vote on the remuneration report at the IQE’s AGM on 23 June 2021 are as below:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
Total number of votes
% of votes cast
463,251,895
6,694,707
469,946,602
86,374
470,032,976
98.57
1.42
99.9
0.01
100
71
Where innovation startsCorporate Governance
t
r
o
p
e
R
e
e
t
t
i
m
m
o
C
G
S
E
ESG Committee Chair’s Introduction
The Environmental, Social and Governance (‘ESG’)
Committee was established on 24 January 2022.
Phil Smith is Chair of the Committee.
The ESG Committee will be responsible for
developing and monitoring the execution of IQE’s
ESG strategy and the communication of IQE’s ESG
activities with our stakeholders. The ESG Committee
will also be responsible for monitoring the Board’s
engagement with IQE’s people, with Derek Jones
acting as the Board’s workforce representative and
reporting to the ESG Committee.
The ESG Committee will be focussed on driving
momentum and providing guidance in the
development of IQE’s ESG strategy. The Committee
will ensure that the strategy aligns with IQE’s short
and long term business goals and that the strategy
is effective and implemented accordingly.
Given its recent establishment, the ESG Committee
will be bringing further updates to our stakeholders
through 2022 and we look forward to receiving your
feedback on those.
Phil Smith
Committee Chair
29 March 2022
72
IQE plc
Annual Report and Financial Statements 2021
ESG Committee Chair’s Introduction
Role of the committee
The ESG Committee is responsible for developing and monitoring the
execution of IQE’s ESG strategy and the communication of that strategy
to IQE’s stakeholders.
Key responsibilities
• ensure that IQE has a fit-for-purpose ESG strategy and for driving momentum
behind the development and implementation of that strategy
• be responsible for communicating IQE’s position on Environmental, Social and
Governance issues
• ensure that the strategy meets IQE’s short and long term business objectives
• review the effectiveness of the strategy and the governance for its successful
delivery
• approve ESG reporting and specifically any reporting and data included in
IQE’s Annual Report
• report to the Board about the Committee’s work and progress against
the strategy
Membership
Phil Smith – Chair
Drew Nelson
Derek Jones (responsible for workforce engagement)
Meetings and attendance
The ESG Committee will meet at least twice a year.
73
Where innovation startsCorporate Governance Directors’ Report
The Directors present their Annual Report and the Financial Statements for
IQE plc (the “Company”) for the year ended 31 December 2021.
Principal Activities and Future Development
The Company is the ultimate holding company of a group of subsidiary undertakings (the “Group”) engaged in the research, design, development, manufacture
and sale of compound semiconductor materials. An overview of our principal activities and an indication of likely future developments in the Group is given in the
Strategic Report.
Strategic Report
The Strategic Report is set out on pages 2 to 47 of the Annual Report.
Directors & Directors’ Interests
Biographies of all of the Company’s directors at the date of this Annual Report, including Non-Executive Directors, appear on pages 42 & 43 of the Annual Report.
Victoria Hull was appointed to the Board as Non-Executive Director on 1 August 2021 and Sir David Grant retired from the Board on 18 September 2021. Victoria has
replaced Sir David as Chair of the Remuneration Committee. Andrew Nelson completed his transition from Chief Executive Officer to President and Non-Executive
Director on 30 October 2021. Americo Lemos was appointed as the Group’s new Chief Executive Officer and a director on 10 January 2022.
The beneficial interests of the directors in the Company’s share capital is shown on page 66 of the Remuneration Report. The beneficial interests of Andrew Nelson,
President and Non-Executive Director, and Tim Pullen, CFO, have changed during the year as they participate in the Company’s LTIP.
No director was beneficially interested in the shares of any subsidiary company at any time during the year.
In the year to 31 December 2021, no director had a material interest in any contract of significance with the Company or any of its subsidiaries.
Insurance and Indemnities
The Group maintains insurance to cover its directors and officers against their costs in defending themselves in legal proceedings taken against them in that capacity
and in respect of damages resulting from the unsuccessful defence of any proceedings. In addition, to the extent permitted by UK law, the Group indemnifies its
directors and officers for liabilities arising from such proceedings. Neither the insurance nor the indemnity provides cover for situations where the director has acted
fraudulently or dishonestly.
Risk Management and Principal Risks
A description of risk management and the principal risks facing the business are set out on pages 40 to 44 of the Annual Report.
Relationship with Suppliers and Customers
Our relationships with our customers are explained throughout the Annual Report, particularly on page 38. Our relationships with our suppliers is specifically covered
on page 30 of the Annual Report.
The Group seeks to agree favourable credit terms with its suppliers where possible. Payment is made in accordance with the agreed terms.
Auditor and Disclosure of Information to the Auditor
The Company’s auditor throughout the period of this Annual Report was KPMG LLP, who were appointed on in December 2017.
As at the date of the approval of this Annual Report, as far as each director is aware, there is no relevant audit information of which the Company’s auditor
is unaware. Each director has taken all such steps as he or she ought to have taken as a director in order to make himself/herself aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information.
74
IQE plc
Annual Report and Financial Statements 2021
Share Capital
The Company’s share capital is made up of one class of ordinary shares of 1p each which each carry one vote at general meetings of the Company. Except as set out
in the Articles of Association or in applicable legislation, there are no restrictions on the transfer of shares in the Company and there are no restrictions on the voting
rights in the Company’s shares. The full rights and obligations attaching to the Company’s ordinary shares, as well as the powers of the directors, are set out in the
Company’s Articles of Association, a copy of which is available on the Company’s website. These can also be obtained from Companies House or by writing to the
General Counsel and Company Secretary.
The Company is not aware of any agreements entered into between any shareholders in the Company which restrict the transfer of shares or the exercise of any
voting rights attached to the shares.
The Company has not acquired any of its own shares during 2021 (2020: nil).
Substantial Shareholdings
As at 28 February 2022, the following are beneficial interests of 3% or more (where the holding is direct) or of 5% or more (where the holding is indirect) which have
been notified to the directors of the Company.
Shareholder
Invesco
T Rowe Price Global Investments
Canaccord Genuity Wealth Management
Hargreaves Lansdown
Interactive Investor
Dr Andrew W Nelson
Lombard Odier Investment Managers
M&G Investments
Source: Equiniti Investor Analytics
Dividends
Shares
142,435,802
78,503,237
64,551,914
60,671,260
43,223,014
40,317,234
36,287,627
27,742,549
Issued
Capital %
17.71
9.76
8.03
7.54
5.37
5.01
4.51
3.45
The directors do not recommend the payment of a dividend (2020: £nil).
Research and Development
The Group continues to devote significant resources to the research and development and the updating and expansion of its range of products in order to remain
at the forefront of its world markets. Further information on the expenditure on research and development is contained in Note 6 of the Financial Statements. The
amount of research and development expenditure capitalised, and the amount amortised, in the year, are given in Note 6 of the Financial Statements.
Employment Policies
A review of the Group’s employment policies is provided on pages 24 to 27 of the Annual Report.
Political Donations
The Group has a policy of not making political donations and no political donations were made during the year (2020: nil).
Climate Change, Greenhouse Gas and Energy Emissions
The Group recognises Climate Change is a key challenge for the world and is working to minimise its environmental impact through a rigorous environmental
management system, in order to minimise greenhouse gas (GHG) and energy emissions. We recognise that as a technology leader, IQE is in a unique position to be
able to improve energy efficiency through our products.
Our approach to environmental protection is underpinned by our Environmental Policy and Environmental Management System, which ensures all our sites operate
in compliance with ISO 14001 requirements. We target minimisation of GHG and energy emissions, as well as focusing on waste, water and recycling initiatives.
Details of our GHG and energy emission figures, as well as the measures we are undertaking to promote energy efficiency, including incorporating energy saving
features into facility design, can be found on page 35.
In January 2022 the Group formed an Environment, Social and Governance Committee in recognition of the importance of ESG to IQE’s stakeholders and the
wider environment. The Committee will be chaired by me and will be responsible for ensuring that the Group has a fit-for-purpose ESG strategy and for supporting
management with building momentum behind that strategy. We look forward to bringing further updates on ESG matters through 2022.
Phil Smith
Chairman, IQE plc
29 March 2022
75
Where innovation startsCorporate Governance Statement of Directors’ responsibilities
in respect of the Annual Report and the
Financial Statement
Statement of Directors’ responsibilities in respect of the financial statements
The directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare Group and parent Company financial statements for each financial year. Under the AIM Rules of the London Stock
Exchange they are required to prepare the Group’s financial statements in accordance with international accounting standards in conformity with the requirements
of the Companies Act 2006 and applicable law and they have elected to prepare the parent Company financial statements on the same basis.
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 parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are
required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
• state whether they have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;
• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic
alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
The directors have decided to prepare voluntarily a Directors’ Remuneration Report in accordance with Schedule 8 to The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 made under the Companies Act 2006, as if those requirements applied to the company. The directors have also
decided to prepare voluntarily a Corporate Governance Statement as if the company were required to comply with the Listing Rules and the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority in relation to those matters.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report and a Directors’ Report that complies with that law and
those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We consider the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business model and strategy.
Approved by the Board and signed on behalf by:
Phil Smith
Chairman, IQE plc.
29 March 2022
76
IQE plc
Annual Report and Financial Statements 2021
Independent
auditor’s report
Overview
Materiality:
group financial
statem ents as a whole
Coverage
£1,200k (2020:£1,250k)
0.8% of total revenues (2020:
0.7% of total revenues)
88% (2020: 91%) of total group
revenues
Key audit matters
vs 2020
Recurring risks
Carrying value of goodwill
▲
Carrying value of
developm ent intangibles
not yet available for use
Revenue recognition
Valuation of investm ents
in and recoverability of
receivables from
subsidiaries
◄►
◄►
◄►
Parent Comp any
only
Event driven risk
Going concern
◄►
to the members of IQE plc
1. Our op inion is unmodified
We have audited the financial statem ents of IQE
PLC (“the Com pany”) for the year ended 31
Decem ber 2021 which com prise the consolidated
incom e statem ent, consolidated statem ent of
com prehensive incom e, consolidated balance
sheet, consolidated statem ent of changes in equity,
consolidated cash flow statem ent, parent com pany
balance sheet, parent com pany statem ent of
changes in equity, parent com pany cash flow
statem ent, and the related notes, including the
accounting policies in note 2.
In our opinion:
— the financial statem ents give a true and fair
view of the state of the Group’s and of the
parent Com pany’s affairs as at 31 Decem ber
2021 and of the Group’s loss for the year then
ended;
— the Group financial statem ents have been
properly prepared in accordance with UK-
adopted international accounting standards;
— the parent Com pany financial statem ents have
been properly prepared in accordance with UK-
adopted international accounting standards and
as applied in accordance with the provisions of
the Com panies Act 2006; and
— the financial statem ents have been prepared in
accordance with the requirem ents of the
Com panies Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities are
described below. We have fulfilled our ethical
responsibilities under, and are independent of the
Group in accordance with, UK ethical requirem ents
including FRC Ethical Standard as applied to listed
entities. We believe that the audit evidence we
have obtained is a sufficient and appropriate basis
for our opinion.
77
77
Financial StatementsWhere innovation starts 2. Key audit matters: including our assessment of risks of material misstatement
Key audit m atters are those m atters that, in our professional judgm ent, were of m ost significance in the audit of the financial
statem ents and include the m ost significant assessed risks of m aterial m isstatem ent (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagem ent team . These m atters were addressed in the context of our audit of the financial
statem ents as a whole, and in form ing our opinion thereon and we do not provide a separate opinion on these m atters. In
arriving at our audit opinion above, the key audit m atters, in decreasing order of audit significance, were as follows:
:
The risk
Our resp onse
Carrying value of goodwill
Forecast b ased assessment
Our procedures included:
(£64.3 m illion; 2020: £63.7
m illion)
Refer to note 2.8 (accounting
policy), 3.1 (accounting
estim ate) and note 13 (financial
disclosures).
We consider the carrying value of goodwill
and the risk over potential im pairm ent to be a
significant audit risk because of the
opportunity for m anipulation and the inherent
uncertainty involved in forecasting and
discounting future cash flows, which are the
basis of the assessm ent of recoverability.
In 2021, the risk of im pairm ent is heightened
due to the potential im pact of current m arket
conditions on the tim ing and level of cash
flows; in particular the adoption of 5G
technology, the global dem and for
sm artphones and the trade tensions
between the US and China. The cash flow
forecasts and the growth therein, and the
discount rate, are key judgm ents and
assum ptions used in the Director’s
im pairm ent review.
The effect of these m atters is that, as part of
our risk assessm ent, we determ ined that the
value in use of goodwill has a high degree of
estim ation uncertainty, with an opportunity
for m anipulation with a potential range of
reasonable outcom es greater than our
m ateriality for the financial statem ents as a
whole, and possibly m any tim es that am ount.
In 2020, our key audit m atter related
specifically to the goodwill allocated to the
Wireless CGU. In 2021, we consider there is
an increased risk associated with the cash
flow forecasts related to the Photonics CGU.
As a consequence, the key audit m atter
relates to the total goodwill balance (which is
allocated to both the Wireless and Photonics
CGUs).
— Benchmarking assump tions: We challenged the
director’s assum ptions and obtained support, such
as board-approved plans, independent m arket
reports and custom er com m unications, where
available, for the cash flow forecasts and growth
assum ptions.
— Our valuation exp ertise: We independently
derived a reasonable range of appropriate discount
rates with the assistance of our valuation
specialists and com pared these to those calculated
by the Group.
— Sensitivity analysis: We perform ed both
breakeven and reasonably foreseeable scenario
sensitivity analysis on the discount rate and growth
assum ptions.
— Historical comp arison: We evaluated the track
record of historical forecasts used against actual
results achieved.
— Assessing transp arency: We assessed whether
the Group’s disclosures reflect the risks and
uncertainties inherent in the valuation of goodwill.
We perform ed the tests above rather than seeking to
rely on any of the group's controls because the nature
of the balance is such that we would expect to obtain
audit evidence prim arily through the detailed
procedures described.
Carrying value of
develop ment intangib les not
yet availab le for use
(£3.0 m illion; 2020: £8.2
m illion)
Refer to note 2.8 (accounting
policy) and note 3.(a) (financial
disclosures).
Sub jective assessment
Our procedures included:
The ability of an intangible asset to generate
sufficient future econom ic benefits to
support its carrying am ount is subject to
considerable uncertainty during the
developm ent phase and is open to
m anagem ent bias.
The current wider econom ic conditions are
considered to give rise to an increased
uncertainty around the ability and
com m itm ent to com plete ongoing projects
and availability of routes to m arket for new,
unproven, technologies.
The effect of these m atters is that, as part of
our risk assessm ent, we determ ined that
there is an increased risk in respect of
continued com m ercial viability, and
consequently, intention to com plete the
developm ent, of previously capitalised
developm ent intangibles not yet available for
use.
— Challenging assump tions: We challenged the
Group's assessm ent of the future viability of
developm ent intangibles not yet available for use,
assessing value in use calculations supporting their
com m ercial viability with reference to external
evidence, including custom er correspondence for
specific projects and/or external m arket analyst
reports in respect of the associated technologies.
— Personnel interviews: We held discussions with
the Group’s Chief Technology Officer to
corroborate our understanding of the future uses,
opportunities and intention for the developm ent
intangibles.
— Assessing transp arency: We have assessed
whether the group’s disclosures reflect the risks
inherent in the valuation of developm ent
intangibles not yet available for use.
We perform ed the tests above rather than seeking to
rely on any of the group's controls because the nature
of the balance is such that we would expect to obtain
audit evidence prim arily through the detailed
procedures described.
IQE plc
Annual Report and Financial Statements 2021
78
78
2. Key audit matters: our assessment of risks of material misstatement (continued)
Revenue recognition
2021/2022 Revenues
Our procedures included:
The risk
Our resp onse
(Period end tim ing m atters
affecting revenue - total revenue in
the period is £154.1 m illion; 2020:
£178.0 m illion)
Pressures on achieving internal and
external expectations of results increase
the risk of fraudulent revenue
recognition, in particular the recognition
of sales around the year-end date.
Refer to note 2.22 (accounting
policy) and note 4.2 (financial
disclosures)
— Indep endent confirmation: We obtained
direct confirm ation of receivables balances
held by a sam ple of custom ers at the year-
end date to agree revenue associated with
product delivered into Supplier Managed
Inventory;
— Test of details: We agreed a sam ple of
sales transactions around the year-end,
based upon their financial significance, to
purchase order and external delivery
confirm ation, to assess whether the
perform ance obligation has been m et and
that revenue has not been overstated or
understated at the year-end date;
— Test of details: We agreed a sam ple of post
year-end credit notes, based upon their
financial significance, to sales order and
external delivery confirm ation, to assess
that revenue has not been overstated at the
year-end date;
We perform ed the tests above rather than
seeking to rely on any of the group's controls
because the num ber of transactions relating to
the risk period m eant that detailed testing is
inherently the m ost effective m eans of
obtaining audit evidence.
Parent Comp any: Valuation of
investments in and
recoverab ility of receivab les
from sub sidiaries
(Investm ents: £76.1 m illion; 2020:
£91.4 m illion, Receivables: £132.7
m illion; 2020: £133.3 m illion)
Refer to notes 2.10 and 2.29
(accounting policy) and notes 16
and 18 (financial disclosures).
Forecast b ased assessment
Our procedures included:
The carrying am ount of the parent
com pany’s investm ents in and
receivables from subsidiaries represents
95% (2020: 95%) of the com pany’s total
assets.
While their recoverable am ount is
subjective due to the inherent
uncertainty involved in forecasting and
discounting future cash flows, it is not
considered to be at a high risk of
significant m isstatem ent or subject to
significant judgem ent. However, due to
their m ateriality in the context of the
parent com pany financial statem ents,
this is considered to be the area that had
the greatest effect on our overall parent
com pany audit.
Test of detail: We com pared the carrying
am ount of 100% of investm ents and
receivables with the relevant subsidiaries’
balance sheet to identify whether their net
assets, being an approxim ation of their
m inim um recoverable am ount, were in excess
of their carrying am ount and assessing whether
those subsidiaries have historically been profit-
m aking.
Assessing sub sidiary audit: We assessed the
work perform ed by the com ponent auditor of
the relevant subsidiary and considered the
results of that work on that subsidiary’s profit
and net assets.
Comp aring valuations: For the investm ents
and receivables where the carrying am ount
exceeded the net asset value, we com pared
their carrying am ount with the expected value
of the business based on the subsidiaries’ value
in use.
We perform ed the tests above rather than
seeking to rely on any of the group's controls
because the nature of the balance is such that
we would expect to obtain audit evidence
prim arily through the detailed procedures
described.
79
79
Financial StatementsWhere innovation starts 2. Key audit matters: our assessment of risks of material misstatement (continued)
The risk
Our resp onse
Going concern
Disclosure Quality
Refer to note 2.2 (accounting
policy and financial disclosures).
The financial statem ents explain how
the Board has form ed a judgem ent that
it is appropriate to adopt the going
concern basis of preparation for the
Group and parent com pany.
That judgem ent is based on an
evaluation of the inherent risks to the
Group’s and Com pany’s business
m odel, and how those risks m ight affect
the Group’s and Com pany’s financial
resources or ability to continue
operations for a period of at least 12
m onths from the date of approval of the
financial statem ents.
The risks m ost likely to adversely affect
the Group’s and Com pany’s available
financial resources and m etrics relevant
to debt covenants over this period were:
— Uncertainty in the tim ing and level of
cash flow forecasts and revenue
growth which are inherently linked to
the global dem and for sm artphones
and the adoption of forthcom ing
technologies such as 5G;
— While undrawn at the balance sheet
date, the Group’s revolving credit
facility expires in April 2023; a one
year extension option is available but
is subject to bank consent.
There are also less predictable but
realistic second order im pacts, such as
the im pact of Covid-19 on custom er
dem and, the availability of debt and
other financing arrangem ents and the
im pact on the wider supply chain, which
could result in a reduction of available
financial resources.
The risk for our audit was whether or
not those risks were such that they
am ounted to a m aterial uncertainty that
m ay have cast significant doubt about
the ability to continue as a going
concern. Had they been such, then that
fact would have been required to have
been disclosed.
We considered whether these risks could
plausibly affect the liquidity or covenant
com pliance in the going concern period by
assessing the directors’ sensitivities over
the level of available financial resources
and covenant thresholds indicated by the
Group’s financial forecasts taking account
of severe, but plausible, adverse effects
that could arise from these risks
individually and collectively.
Our procedures also included:
— Funding assessment: We obtained
relevant loan agreem ents and evidence
of the revolving credit facility, agreeing
facilities available to the Group and
recalculated covenant com pliance and
headroom based on m anagem ent’s
latest forecasts and those in severe but
plausible downside scenarios.
— Our Covid-19 knowledge: We
considered the directors’ assessm ent
of Covid-19 related sources of risk for
the Group’s business and financial
resources com pared with our own
understanding of the risks. This
included assessing the effects of the
pandem ic on the Group over the past
two years as well as governm ent
guidance on critical industry and key
worker status.
— Our sector exp erience: We critically
assessed the directors’ going concern
assessm ent, including the
reasonableness of the key assum ptions
used in the cash flow forecasts and the
level of downside sensitivities applied
using our industry knowledge of risks
and external m arket research.
— Evaluating directors’ intent: We
evaluated the achievability of the
actions the Directors consider they
would take to im prove the position
should the risks m aterialise. This
included assessing the intent and ability
of the Directors to im plem ent these
actions in the tim e fram e required and
that they were entirely in the Directors’
control.
— Assessing transp arency: We
assessed the com pleteness and
accuracy of the m atters covered in the
going concern disclosures by
com paring this to the key assum ptions,
key sensitivities and m itigating actions
considered by the Directors.
80
80
IQE plc
Annual Report and Financial Statements 2021
3. Our ap p lication of materiality and an overview of the
scop e of our audit
scop e of our audit
3. Our ap p lication of materiality and an overview of the
Materiality for the group financial statem ents as a whole was
set at £1,200k (2020: £1,250k), determ ined with reference to a
benchm ark of revenue of which it represents 0.8% (2020:
0.7%).
Materiality for the group financial statem ents as a whole was
set at £1,200k (2020: £1,250k), determ ined with reference to a
We consider total revenue to be the m ost appropriate
benchm ark of revenue of which it represents 0.8% (2020:
benchm ark as it provides a m ore stable m easure in the group’s
0.7%).
continued transition to m ass m arket production. The level of
m ateriality reflects the size of the group.
We consider total revenue to be the m ost appropriate
Materiality for the parent com pany financial statem ents as a
benchm ark as it provides a m ore stable m easure in the group’s
whole was set at £1,199k (2020: £500k) determ ined with
continued transition to m ass m arket production. The level of
reference to a benchm ark of parent com pany total assets,
m ateriality reflects the size of the group.
lim ited to be less than m ateriality for group m ateriality as a
whole. It represents 0.6% (2020: 0.2%) of the stated
Materiality for the parent com pany financial statem ents as a
benchm ark.
whole was set at £1,199k (2020: £500k) determ ined with
reference to a benchm ark of parent com pany total assets,
In line with our audit m ethodology, our procedures on individual
lim ited to be less than m ateriality for group m ateriality as a
account balances and disclosures were perform ed to a lower
whole. It represents 0.6% (2020: 0.2%) of the stated
threshold, perform ance m ateriality, so as to reduce to an
acceptable level the risk that individually im m aterial
benchm ark.
m isstatements in individual account balances add up to a
In line with our audit m ethodology, our procedures on individual
m aterial am ount across the financial statem ents as a whole.
account balances and disclosures were perform ed to a lower
Perform ance m ateriality was set at 75% (2020: 75%) of
threshold, perform ance m ateriality, so as to reduce to an
m ateriality for the financial statem ents as a whole, which
acceptable level the risk that individually im m aterial
equates to £900k (2020: £935k) for the group and £899k (2020:
m isstatements in individual account balances add up to a
£375k) for the parent com pany. We applied this percentage in
m aterial am ount across the financial statem ents as a whole.
our determ ination of perform ance m ateriality because we did
not identify any factors indicating an elevated level of risk.
Perform ance m ateriality was set at 75% (2020: 75%) of
We agreed to report to the Audit Com m ittee any corrected or
m ateriality for the financial statem ents as a whole, which
uncorrected identified m isstatements exceeding £60k (2020:
equates to £900k (2020: £935k) for the group and £899k (2020:
£62k), in addition to other identified m isstatements that
£375k) for the parent com pany. We applied this percentage in
warranted reporting on qualitative grounds.
our determ ination of perform ance m ateriality because we did
not identify any factors indicating an elevated level of risk.
Of the group’s 18 (2020: 18) reporting com ponents, we
subjected 6 (2020: 7) to full scope audits for group purposes and
We agreed to report to the Audit Com m ittee any corrected or
1 (2020: 3) to specified risk-focused audit procedures. The latter
uncorrected identified m isstatements exceeding £60k (2020:
were not individually financially significant enough to require a
£62k), in addition to other identified m isstatements that
full scope audit for group purposes, but did present specific
warranted reporting on qualitative grounds.
individual risks that needed to be addressed.
The com ponents within the scope of our work accounted for the
Of the group’s 18 (2020: 18) reporting com ponents, we
percentages illustrated opposite. The rem aining 12% (2020: 9%)
subjected 6 (2020: 7) to full scope audits for group purposes and
of total group revenue and 13% (2020: 7%) of total group assets
1 (2020: 3) to specified risk-focused audit procedures. The latter
is represented by 11 (2020: 8) reporting com ponents, none of
were not individually financially significant enough to require a
which individually represented m ore than 5% (2020: 5%) of total
full scope audit for group purposes, but did present specific
group revenue or total group assets. For these residual
individual risks that needed to be addressed.
com ponents, we perform ed analysis at a group level to re-
exam ine our assessm ent that there were no significant risks of
The com ponents within the scope of our work accounted for the
m aterial m isstatement within these.
percentages illustrated opposite. The rem aining 12% (2020: 9%)
of total group revenue and 13% (2020: 7%) of total group assets
The Group team approved the com ponent m aterialities, which
ranged from £400k to £850k (2020: £350k to £750k), having
is represented by 11 (2020: 8) reporting com ponents, none of
regard to the m ix of size and risk profile of the Group across the
which individually represented m ore than 5% (2020: 5%) of total
com ponents.
group revenue or total group assets. For these residual
com ponents, we perform ed analysis at a group level to re-
The Group team instructed one com ponent auditor in respect of
exam ine our assessm ent that there were no significant risks of
one location as to the significant areas to be covered, including
the relevant risks and the inform ation to be reported back. Work
m aterial m isstatement within these.
perform ed on all other com ponents was perform ed by the group
team .
The Group team approved the com ponent m aterialities, which
ranged from £400k to £850k (2020: £350k to £750k), having
Video and telephone conference m eetings were held with the
regard to the m ix of size and risk profile of the Group across the
com ponent auditor. At these m eetings, the findings reported to
com ponents.
the Group team were discussed in m ore detail, and any further
work required by the Group team was then perform ed by the
The Group team instructed one com ponent auditor in respect of
com ponent auditor.
one location as to the significant areas to be covered, including
the relevant risks and the inform ation to be reported back. Work
The scope of the audit work perform ed was predom inately
perform ed on all other com ponents was perform ed by the group
substantive as we placed lim ited reliance upon the Group's
internal control over financial reporting.
team .
Video and telephone conference m eetings were held with the
com ponent auditor. At these m eetings, the findings reported to
the Group team were discussed in m ore detail, and any further
work required by the Group team was then perform ed by the
com ponent auditor.
81
The scope of the audit work perform ed was predom inately
substantive as we placed lim ited reliance upon the Group's
internal control over financial reporting.
Key:
Key:
Revenue
£154,096k (2020: Revenue of
£178,016k)
Revenue
£154,096k (2020: Revenue of
£178,016k)
Group Materiality
£1,200k (2020: £1,250k)
£1,2 00k
Whole financial
Group Materiality
statements materiality
£1,200k (2020: £1,250k)
(2020: £1,250k)
£1,2 00k
Whole financial
statements materiality
(2020: £1,250k)
£900k
Whole financial
statements performance
materiality
(2020: £93 5k)
£900k
Whole financial
£85 0k
statements performance
Range of materiality at 7
materiality
components (£400k to 850k)
(2020: £93 5k)
(2020: £3 50k to £750k)
Revenue
Group materiality
Revenue
Group materiality
Group revenue
£60k
Misstatements reported to the
audit committee (2020: £6 2k)
£85 0k
Range of materiality at 7
components (£400k to 850k)
(2020: £3 50k to £750k)
£60k
Misstatements reported to the
audit committee (2020: £6 2k)
1
5
Group revenue
88%
(2 02 0 91%)
1
5
86
87
88%
Group total assets
(2 02 0 91%)
6
6
86
87
87%
Group total assets
(2 02 0 93%)
6
6
87
81
87%
(2 02 0 93%)
Full scope for group audit purposes 2021
Specified risk-focused audit procedures 2021
87
Full scope for group audit purposes 2020
81
Specified risk-focused audit procedures 2020
Residual components
Full scope for group audit purposes 2021
Specified risk-focused audit procedures 2021
Full scope for group audit purposes 2020
Specified risk-focused audit procedures 2020
Residual components
81
81
Financial StatementsWhere innovation starts 4. We have nothing to rep ort on going concern
5. Fraud and b reaches of laws and regulations – ab ility to
The Directors have prepared the financial statem ents on the
going concern basis as they do not intend to liquidate the
Group or the Com pany or to cease their operations, and as
they have concluded that the Group’s and the Com pany’s
financial position m eans that this is realistic. They have also
concluded that there are no m aterial uncertainties that
could have cast significant doubt over their ability to
continue as a going concern for a period of at least 12
m onths from the date of approval of the financial
statem ents (“the going concern period”).
An explanation of how we evaluated m anagem ent’s
assessm ent of going concern is set out in the related key
audit m atter in section 2 of this report.
detect
Identifying and responding to risks of m aterial m isstatem ent
due to fraud
To identify risks of m aterial m isstatem ent due to fraud (“fraud
risks”) we assessed events or conditions that could indicate
an incentive or pressure to com m it fraud or provide an
opportunity to com m it fraud. Our risk assessm ent procedures
included :
— Enquiring of directors, the audit com m ittee and the
com pany secretary and inspection of policy docum entation
as to the Group’s high-level policies and procedures to
prevent and detect fraud, including the Group’s channel for
“whistleblowing”, as well as whether they have
knowledge of any actual, suspected or alleged fraud.
Our conclusions based on this work:
— Reading Board, audit com m ittee and rem uneration
— we consider that the Directors’ use of the going
concern basis of accounting in the preparation of the
financial statem ents is appropriate;
— we have not identified, and concur with the Directors’
assessm ent that there is not, a m aterial uncertainty
related to events or conditions that, individually or
collectively, m ay cast significant doubt on the Group’s
or Com pany's ability to continue as a going concern for
the going concern period;
— we have nothing m aterial to add or draw attention to in
relation to the Directors’ statem ent in note 2.2 to the
financial statem ents on the use of the going concern
basis of accounting with no m aterial uncertainties that
m ay cast significant doubt over the Group and
Com pany’s use of that basis for the going concern
period and we found the going concern disclosure in
note 2.2 to be acceptable; and
— the related statem ent given as if the Listing Rules
applied set out on page 45 is m aterially consistent with
our audit knowledge.
However, as we cannot predict all future events or
conditions and as subsequent events m ay result in
outcom es that are inconsistent with judgem ents that were
reasonable at the tim e they were m ade, the above
conclusions are not a guarantee that the Group or the
Com pany will continue in operation.
m eeting m inutes.
— Considering rem uneration incentive schem es and
perform ance targets for directors and m anagem ent
including bonus targets and Long Term Incentive Plan EPS
growth targets for director and m anagem ent
rem uneration.
We com m unicated identified fraud risks throughout the audit
and rem ained alert to any indications of fraud throughout the
audit. This included com m unication from the group to the one
full scope com ponent audit team of relevant fraud risks
identified at the Group level and request to the full scope
com ponent audit team to report to the Group audit team any
instances of fraud that could give rise to a m aterial
m isstatem ent at group.
As required by auditing standards, and taking into account
possible pressures to m eet profit targets and revisions to
m arket guidance, we perform procedures to address the risk
of m anagem ent override of controls and the risk of fraudulent
revenue recognition, in particular the risk that revenue is
recorded in the wrong period.
We also identified a fraud risk related to the valuation of
goodwill and intangible assets not yet available for use. There
is a risk that Group m anagem ent m ay be in a position to m ake
inappropriate accounting entries or include bias in the
accounting estim ates and judgem ents in order to m eet target
results or to overstate the future value of the business.
Further detail in respect of these risks are set out in the key
audit m atter disclosures in section 2 of this report.
We also perform ed procedures including:
— Identifying journal entries for all full scope com ponents to
test based on risk criteria and com paring the identified
entries to supporting docum entation. These included
revenue and cash entries to unexpected accounts.
— Assessing significant accounting estim ates for bias.
82
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IQE plc
Annual Report and Financial Statements 2021
5. Fraud and b reaches of laws and regulations – ab ility to
5. Fraud and b reaches of laws and regulations – ab ility to
detect (continued)
detect (continued)
Context of the ability of the audit to detect fraud or
breaches of law or regulation
Owing to the inherent lim itations of an audit, there is an
unavoidable risk that we m ay not have detected som e
m aterial m isstatem ents in the financial statem ents, even
though we have properly planned and perform ed our audit
in accordance with auditing standards. For exam ple, the
further rem oved non-com pliance with laws and regulations
is from the events and transactions reflected in the financial
statem ents, the less likely the inherently lim ited procedures
required by auditing standards would identify it.
In addition, as with any audit, there rem ained a higher risk
of non-detection of fraud, as these m ay involve collusion,
forgery, intentional om issions, m isrepresentations, or the
override of internal controls. Our audit procedures are
designed to detect m aterial m isstatem ent. We are not
responsible for preventing non-com pliance or fraud and
cannot be expected to detect non-com pliance with all laws
and regulations.
Identifying and responding to risks of m aterial
m isstatem ent due to non-com pliance with laws and
regulations
We identified areas of laws and regulations that could
reasonably be expected to have a m aterial effect on the
financial statem ents from our general com m ercial and
sector experience and through discussion with the directors
and other m anagem ent (as required by auditing standards),
and from inspection of the Group’s regulatory and legal
correspondence and discussed with the directors and other
m anagem ent the policies and procedures regarding
com pliance with laws and regulations.
We com m unicated identified laws and regulations
throughout our team and rem ained alert to any indications
of non-com pliance throughout the audit. This included
com m unication from the group to the one full-scope
com ponent audit team of relevant laws and regulations
identified at the Group level, and a request for the full scope
com ponent auditor to report to the group team any
instances of non-com pliance with laws and regulations that
could give rise to a m aterial m isstatem ent at group level.
The potential effect of these laws and regulations on the
financial statem ents varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statem ents including financial
reporting legislation (including related com panies
legislation), distributable profits legislation and taxation
legislation and we assessed the extent of com pliance with
these laws and regulations as part of our procedures on the
related financial statem ent item s.
Secondly, the Group is subject to m any other laws and
regulations where the consequences of non-com pliance
could have a m aterial effect on am ounts or disclosures in
the financial statem ents, for instance through the
im position of fines or litigation. We identified the following
areas as those m ost likely to have such an effect: health
and safety, environm ental and hazardous m aterial
legislation, export control legislation, anti-bribery,
em ploym ent law and certain aspects of com pany
legislation, recognising the nature of the Group’s global
m anufacturing and developm ent activities. Auditing
standards lim it the required audit procedures to identify
non-com pliance with these laws and regulations to enquiry
of the directors and other m anagem ent and inspection of
regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or
evident from relevant correspondence, an audit will not
detect that breach.
83
83
Financial StatementsWhere innovation starts 6. We have nothing to rep ort on the other information in
Corporate governance disclosures
We are required to perform procedures to identify whether
there is a m aterial inconsistency between the directors’
corporate governance disclosures and the financial
statem ents and our audit knowledge.
Based on those procedures, we have concluded that each
of the following is m aterially consistent with the financial
statem ents and our audit knowledge:
— the directors’ statem ent that they consider that the
annual report and financial statem ents taken as a whole
is fair, balanced and understandable and provides the
inform ation necessary for shareholders to assess the
Group’s position and perform ance, business m odel and
strategy; or
— the section of the annual report describing the work of
the Audit Com m ittee does not appropriately address
m atters com m unicated by us to the Audit Com m ittee,
and how these issues were addressed; and
— the section of the annual report that describes the
review of the effectiveness of the Group’s risk
m anagem ent and internal control system s.
In addition to our audit of the financial statem ents, the
directors have engaged us to review their Corporate
Governance Statem ent as if the com pany were required to
com ply with the Listing Rules and the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority
in relation to those m atters. Under the term s of our
engagem ent we are required to review the part of the
Corporate Governance Statem ent relating to the Com pany’s
com pliance with the provisions of the UK Corporate
Governance Code specified for our review.
We have nothing to report in these respects.
the Annual Rep ort
The directors are responsible for the other inform ation
presented in the Annual Report together with the financial
statem ents. Our opinion on the financial statem ents does
not cover the other inform ation and, accordingly, we do not
express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other inform ation and, in
doing so, consider whether, based on our financial
statem ents audit work, the inform ation therein is m aterially
m isstated or inconsistent with the financial statem ents or
our audit knowledge. Based solely on that work we have
not identified m aterial m isstatem ents in the other
inform ation.
Strategic report and directors’ report
Based solely on our work on the other inform ation:
— we have not identified m aterial m isstatem ents in the
strategic report and the directors’ report;
— in our opinion the inform ation given in those reports for
the financial year is consistent with the financial
statem ents; and
— in our opinion those reports have been prepared in
accordance with the Com panies Act 2006.
Disclosures of em erging and principal risks and longer-term
viability
We are required to perform procedures to identify whether
there is a m aterial inconsistency between the directors’
disclosures in respect of em erging and principal risks and
the viability statem ent, and the financial statem ents and
our audit knowledge.
Based on those procedures, we have nothing m aterial to
add or draw attention to in relation to:
— the directors’ confirm ation within the long term viability
statem ent on page 45 that they have carried out a
robust assessm ent of the em erging and principal risks
facing the Group, including those that would threaten its
business m odel, future perform ance, solvency and
liquidity;
— the Principal Risks disclosures describing these risks
and how em erging risks are identified, and explaining
how they are being m anaged and m itigated; and
— the directors’ explanation in the long term viability
statem ent of how they have assessed the prospects of
the Group, over what period they have done so and why
they considered that period to be appropriate, and their
statem ent as to whether they have a reasonable
expectation that the Group will be able to continue in
operation and m eet its liabilities as they fall due over the
period of their assessm ent, including any related
disclosures drawing attention to any necessary
qualifications or assum ptions.
Our work is lim ited to assessing these m atters in the
context of only the knowledge acquired during our financial
statem ents audit. As we cannot predict all future events or
conditions and as subsequent events m ay result in
outcom es that are inconsistent with judgm ents that were
reasonable at the tim e they were m ade, the absence of
anything to report on these statem ents is not a guarantee
as to the Group’s and Com pany’s longer-term viability.
84
84
IQE plc
Annual Report and Financial Statements 2021
7. We have nothing to rep ort on the other matters on
9. The p urp ose of our audit work and to whom we owe
which we are required to rep ort b y excep tion
our resp onsib ilities
Under the Com panies Act 2006, we are required to report
to you if, in our opinion:
— adequate accounting records have not been kept by the
parent Com pany, or returns adequate for our audit have
not been received from branches not visited by us; or
— the parent Com pany financial statem ents are not in
agreem ent with the accounting records and returns; or
— certain disclosures of directors’ rem uneration specified
by law are not m ade; or
— we have not received all the inform ation and
explanations we require for our audit.
We have nothing to report in these respects.
This report is m ade solely to the com pany’s m em bers, as a
body, in accordance with Chapter 3 of Part 16 of the
Com panies Act 2006 and term s of our engagem ent by the
Com pany. Our audit work has been undertaken so that we
m ight state to the com pany’s m em bers those m atters we
are required to state to them in an auditor’s report, and the
further m atters we are required to state to them in
accordance with the term s agreed with the Com pany, and
for no other purpose. To the fullest extent perm itted by law,
we do not accept or assum e responsibility to anyone other
than the com pany and the com pany’s m em bers, as a body,
for our audit work, for this report, or for the opinions we
have form ed.
Andrew Camp b ell-Orde (Senior Statutory Auditor)
for and on b ehalf of KPMG LLP, Statutory Auditor
Chartered Accountants
3 Assem bly Square
Britannia Quay
Cardiff
CF10 4AX
29 March 2022
8. Resp ective resp onsib ilities
Directors’ responsibilities
As explained m ore fully in their statem ent set out on page
76, the directors are responsible for: the preparation of the
financial statem ents including being satisfied that they give
a true and fair view; such internal control as they determ ine
is necessary to enable the preparation of financial
statem ents that are free from m aterial m isstatem ent,
whether due to fraud or error; assessing the Group and
parent Com pany’s ability to continue as a going concern,
disclosing, as applicable, m atters related to going concern;
and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Com pany or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statem ents as a whole are free from
m aterial m isstatem ent, whether due to fraud or error, and
to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a m aterial m isstatem ent when it
exists. Misstatem ents can arise from fraud or error and are
considered m aterial if, individually or in aggregate, they
could reasonably be expected to influence the econom ic
decisions of users taken on the basis of the financial
statem ents.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
85
85
Financial StatementsWhere innovation starts Five-year financial summary
Revenue
Adjusted EBITDA (see below)
Operating (loss)/profit
• Adjusted*
• Reported
(Loss)/profit after tax
• Adjusted*
• Reported
Net cash flow from operations
Before adjustments (note 5)
Reported
Free cash flow**
Before exceptional cash flows
Reported
Net (debt)/cash excluding lease liabilities***
Equity shareholders’ funds
Basic EPS – adjusted****
Basic EPS – unadjusted
Diluted EPS – adjusted****
Diluted EPS – unadjusted
2021
£’000
154,096
18,679
(6,454)
(19,978)
(19,281)
(31,002)
17,940
18,883
(1,640)
(697)
(5,804)
234,621
(2.41p)
(3.87p)
(2.41p)
(3.87p)
2020
£’000
178,016
30,101
5,386
(5,517)
2,702
(2,893)
36,324
35,457
24,929
24,062
1,923
260,435
0.29p
(0.41p)
0.29p
(0.41p)
2019
£’000
140,015
16,246
(4,676)
(18,802)
(19,010)
(35,128)
16,530
8,948
(25,445)
(33,027)
(15,970)
266,593
(2.46p)
(4.51p)
(2.46p)
(4.51p)
2018
£’000
156,291
26,404
16,040
8,660
11,229
1,189
16,982
16,988
(26,045)
(26,039)
20,807
305,730
1.44p
0.13p
1.38p
0.12p
2017
£’000
154,553
37,152
26,534
17,194
24,998
14,660
31,089
29,717
(2,945)
(4,317)
45,612
287,950
3.61p
2.11p
3.38p
1.98p
*
**
The adjusted performance measures for 2021 and 2020 are reconciled in note 5. The adjusted performance measures for 2017-2019 are reconciled in those financial statements.
Free cash flow is defined as net cash flow outflow of £14,080,000 (2020: £16,003,000 inflow) before cash flows from financing activities of £11,170,000 (2020: £5,701,000) and net
interest paid of £2,213,000 (2020: £2,358,000).
*** Net (debt)/cash is defined as cash less borrowings but excluding lease liabilities.
**** Adjusted EPS measures exclude the impact of certain non-cash charges, non-operational items and significant infrequent items that would distort period on period comparability (see
note 12).
86
IQE plc
Annual Report and Financial Statements 2021
Adjusted EBITDA has been calculated as follows:
(Loss)/profit after tax
Tax charge/(credit)
Interest expense/(income)
Share based payments
(Profit)/Loss on disposal of PPE
Adjusted items
Depreciation of PPE
Depreciation of right of use asset
Amortisation of intangible assets
Adjusted EBITDA
2021
£’000
(31,002)
8,811
2,213
1,691
(77)
11,833
13,309
3,854
8,047
18,679
2020
£’000
(2,893)
(1,001)
2,165
265
182
6,850
12,983
3,681
7,869
30,101
2019
£’000
(35,128)
10,180
1,458
(771)
(245)
18,463
10,477
3,590
8,222
16,246
2018
£’000
1,189
5,558
(87)
(1,044)
–
7,906
6,773
–
6,109
26,404
2017
£’000
14,660
435
2,099
7,526
22
385
5,637
–
6,388
37,152
87
Financial StatementsWhere innovation starts Consolidated income statement
For the year ended 31 December 2021
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Impairment loss on financial assets
Profit on disposal of property, plant and equipment
Operating loss
Finance costs
Reversal/share of losses of joint ventures accounted for using the equity method
Adjusted (loss)/profit before income tax
Adjustments
Loss before income tax
Taxation
Loss for the year
Loss attributable to:
Equity shareholders
Non-controlling interest
Loss per share attributable to owners of the parent during the year
Basic loss per share
Diluted loss earnings per share
Adjusted basic and diluted loss per share are presented in note 12.
All items included in the loss for the year relate to continuing operations.
Note
4
5
5
6
8
30
5
9
2021
£’000
154,096
(136,452)
17,644
(37,699)
–
77
(19,978)
(2,213)
–
(8,667)
(13,524)
(22,191)
(8,811)
(31,002)
(31,002)
–
(31,002)
12
12
(3.87p)
(3.87p)
2020
£’000
178,016
(144,866)
33,150
(34,697)
(3,788)
(182)
(5,517)
(2,165)
3,788
3,221
(7,115)
(3,894)
1,001
(2,893)
(3,271)
378
(2,893)
(0.41p)
(0.41p)
Non-controlling interest relates to minority shareholder interests in the Group’s subsidiary, IQE Taiwan ROC, prior to the acquisition of the minority shareholding on
5 October 2020 (note 31).
The company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company profit and loss account.
The notes on pages 96 to 143 form an integral part of these consolidated financial statements.
88
IQE plc
Annual Report and Financial Statements 2021
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Loss for the year
Exchange differences on translation of foreign operations*
Total comprehensive expense for the year
Total comprehensive expense attributable to:
Equity shareholders
Non-controlling interest
*
Items that may be subsequently be reclassified to profit or loss.
2021
£’000
(31,002)
4,744
(26,258)
(26,258)
–
(26,258)
2020
£’000
(2,893)
(6,104)
(8,997)
(9,482)
485
(8,997)
Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive expense is disclosed in note 9.
The notes on pages 96 to 143 form an integral part of these consolidated financial statements.
89
Financial StatementsWhere innovation starts Consolidated balance sheet
As at 31 December 2021
Non-current assets
Intangible assets
Fixed asset investments
Property, plant and equipment
Right of use assets
Deferred tax assets
Other financial assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Bank borrowings
Lease liabilities
Provisions for other liabilities and charges
Total current liabilities
Non-current liabilities
Bank borrowings
Lease liabilities
Deferred tax liabilities
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
Exchange rate reserve
Other reserves
Non-controlling interest
Total equity
Note
13
16
14
15
10
18
17
18
19
20
20
21
20
20
10
21
23
2021
£’000
95,866
–
129,730
44,267
–
–
269,863
31,710
38,860
10,791
81,361
2020
£’000
105,772
–
126,229
37,339
7,821
–
277,161
30,887
38,575
24,663
94,125
351,224
371,286
(37,083)
(1,342)
(6,230)
(4,694)
(3,686)
(53,035)
(10,365)
(49,693)
(2,060)
(1,450)
(63,568)
(35,605)
(1,426)
(6,201)
(4,798)
(515)
(48,545)
(16,539)
(42,226)
(2,054)
(1,487)
(62,306)
(116,603)
(110,851)
234,621
260,435
8,036
154,632
29,295
26,035
16,623
234,621
–
234,621
8,004
154,185
62,089
21,291
14,866
260,435
–
260,435
The notes on pages 96 to 143 form an integral part of these consolidated financial statements. The financial statements on pages 88 to 143 were authorised for issue
by the Board of Directors and approved on 29 March 2022 and were signed on its behalf.
Mr T Pullen
Mr A Lemos
90
IQE plc
Annual Report and Financial Statements 2021
Consolidated statement of changes in equity
For the year ended 31 December 2021
Share
capital
£’000
8,004
Share
premium
£’000
154,185
Retained
earnings
£’000
Exchange
Rate reserve
£’000
62,089
21,291
Other
reserves
£’000
14,866
–
–
–
–
–
32
–
32
–
–
–
–
–
447
–
447
(31,002)
–
(31,002)
–
–
–
(1,792)
(1,792)
–
4,744
4,744
–
–
–
–
–
–
–
–
1,850
(93)
–
–
1,757
8,036
154,632
29,295
26,035
16,623
Share
capital
£’000
7,961
Share
premium
£’000
152,385
Retained
earnings
£’000
Exchange
Rate reserve
£’000
63,826
27,502
Other
reserves
£’000
14,919
–
–
–
–
–
17
26
43
–
–
–
–
–
388
1,412
1,800
(3,271)
–
(3,271)
–
–
–
1,534
1,534
–
(6,211)
(6,211)
–
–
–
–
–
–
–
–
55
57
(165)
–
(53)
Non-
controlling
interests
£’000
–
–
–
–
–
–
–
–
–
–
Non-
controlling
interests
£’000
Total
equity
£’000
260,435
(31,002)
4,744
(26,258)
1,850
(93)
479
(1,792)
444
234,621
Total
equity
£’000
3,850
270,443
378
107
485
–
–
–
(4,335)
(4,335)
(2,893)
(6,104)
(8,997)
55
57
240
(1,363)
(1,011)
8,004
154,185
62,089
21,291
14,866
–
260,435
At 1 January 2021
Comprehensive expense
Loss for the year
Other comprehensive income for the year
Total comprehensive expense for the year
Transactions with owners
Share based payments
Tax relating to share options
Proceeds from shares issued
Acquisition of non-controlling interest
Total transactions with owners
At 31 December 2021
At 1 January 2020
Comprehensive expense
(Loss)/profit for the year
Other comprehensive expense for the year
Total comprehensive expense for the year
Transactions with owners
Share based payments
Tax relating to share options
Proceeds from shares issued
Acquisition of non-controlling interest
Total transactions with owners
At 31 December 2020
Other reserves relate to share based payments.
The notes on pages 96 to 143 form an integral part of these consolidated financial statements.
91
Financial StatementsWhere innovation starts Consolidated cash flow statement
For the year ended 31 December 2021
Cash flows from operating activities
Adjusted cash inflow from operations
Cash impact of adjustments
Cash generated from operations
Net interest paid
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Capitalised development expenditure
Proceeds from disposal of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Acquisition of minority interest
Proceeds from issuance of ordinary shares
Proceeds from borrowings
Repayment of borrowings
Payment of lease liabilities
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange losses on cash and cash equivalents
Cash and cash equivalents at 31 December
Note
5
26
27
27
27
2021
£’000
17,940
943
18,883
(2,213)
(1,275)
15,395
(15,051)
(345)
(2,994)
85
(18,305)
(1,792)
472
–
(6,145)
(3,705)
(11,170)
(14,080)
24,663
208
10,791
Restated
2020
£’000
36,324
(867)
35,457
(2,358)
(993)
32,106
(4,993)
(731)
(4,678)
–
(10,402)
(1,363)
240
5,000
(7,030)
(2,548)
(5,701)
16,003
8,800
(140)
24,663
The notes on pages 96 to 143 form an integral part of these consolidated financial statements.
The comparative financial information for 2020 has been restated to reclassify cash flows associated with Acquisition of minority interest from investing activities
to financing activities and to reclassify interest lease cash flows from financing activities to net interest paid in cash generated from operating activities. The
reclassifications have had no impact on net assets, loss after tax or total cash flow for 2020.
92
IQE plc
Annual Report and Financial Statements 2021
Parent company balance sheet
For the year ended 31 December 2021
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Deferred tax assets
Trade and other receivables
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
Bank borrowings
Provisions for other liabilities and charges
Total current liabilities
Non-current liabilities
Bank borrowings
Provisions for other liabilities and charges
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Retained earnings
Other reserves
Total equity
Note
13
14
16
10
18
18
19
20
21
20
21
23
2021
£’000
1,943
107
76,069
127
132,677
210,923
2,125
262
2,387
2020
£’000
3,713
15
91,420
3,975
133,314
232,437
2,609
635
3,244
213,310
235,681
(30,387)
–
(740)
(31,127)
–
(962)
(962)
(32,089)
181,221
8,036
154,632
1,829
16,724
181,221
(25,631)
–
(515)
(26,146)
–
(1,325)
(1,325)
(27,471)
208,210
8,004
154,185
31,101
14,920
208,210
The parent company’s loss for the financial year amounted to £29,272,000 (2020: £7,586,000 loss).
The notes on pages 96 to 143 form an integral part of these consolidated financial statements.
The financial statements on pages 88 to 143 were authorised for issue by the Board of Directors and approved on 29 March 2022 and were signed on its behalf.
Mr T Pullen
Mr A Lemos
93
Financial StatementsWhere innovation starts
Parent company statement of changes in equity
For the year ended 31 December 2021
At 1 January 2021
Comprehensive expense
Loss for the year
Total comprehensive expense
Transactions with owners
Share based payments
Tax relating to share options
Proceeds from shares issued
Total transactions with owners
At 31 December 2021
At 1 January 2020
Comprehensive expense
Loss for the year
Total comprehensive expense
Transactions with owners
Share based payments
Tax relating to share options
Proceeds from shares issued
Total transactions with owners
At 31 December 2020
Share
capital
£’000
8,004
Share
premium
£’000
154,185
–
–
–
–
32
32
–
–
–
–
447
447
Retained
earnings
£’000
31,101
(29,272)
(29,272)
–
–
–
–
Other
reserves
£’000
14,920
–
–
1,850
(46)
–
1,804
Total
Equity
£’000
208,210
(29,272)
(29,272)
1,850
(46)
479
2,283
8,036
154,632
1,829
16,724
181,221
Share
capital
£’000
7,961
Share
premium
£’000
152,385
–
–
–
–
43
43
–
–
–
–
1,800
1,800
Retained
earnings
£’000
38,687
(7,586)
(7,586)
–
–
–
–
Other
reserves
£’000
15,004
–
–
55
26
(165)
(84)
Total
Equity
£’000
214,037
(7,586)
(7,586)
55
26
1,678
1,759
8,004
154,185
31,101
14,920
208,210
Other reserves relate to share based payments.
The notes on pages 96 to 143 form an integral part of these consolidated financial statements.
94
IQE plc
Annual Report and Financial Statements 2021
Parent company cash flow statement
For the year ended 31 December 2021
Cash flows from operating activities
Cash outflow from operations
Interest received
Income tax paid
Net cash used in operating activities
Purchase of intangible assets
Purchase of property plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Proceeds from borrowings
Repayments of borrowings
Net cash generated from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
The notes on pages 96 to 143 form an integral part of these consolidated financial statements.
Note
26
2021
£’000
(2,337)
1,905
–
(432)
(314)
(106)
(420)
479
–
–
479
(373)
635
262
2020
£’000
(2,336)
1,842
–
(494)
(845)
(12)
(857)
240
5,000
(5,000)
240
(1,111)
1,746
635
95
Financial StatementsWhere innovation starts Notes to the financial statements
For the year ended 31 December 2021
1. General information
IQE plc (‘the company’) and its subsidiaries (together ‘the Group’) develop, manufacture and sell advanced semiconductor materials. The Group has manufacturing
facilities in Europe, United States of America and Asia and sells to customers located globally.
IQE plc is a public limited company incorporated in the United Kingdom under the Companies Act 2006. The Company is domiciled in the United Kingdom and is
quoted on the Alternative Investment Market (AIM). The address of the Company’s registered office is Pascal Close, St Mellons, Cardiff, CF3 0LW.
2. Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently
applied to all years presented.
2.1 Basis of preparation
The financial statements have been prepared and approved by the directors in accordance with international accounting standards in conformity with UK adopted
international accounting standards (“UK adopted IFRS”). The financial statements have been prepared under the historical cost convention except where fair value
measurement is required by IFRS.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its
judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions
and estimates are significant to the consolidated financial statements are disclosed in note 3.
2.2 Going concern
The Group made a loss of £31,002,000 (2020: £2,893,000 loss) and used £13,872,000 of cash and cash equivalents (2020: £15,863,000 generated) resulting in a net
debt position (excluding lease liabilities) of £5,804,000 (2020: £1,923,000 net cash) as at 31 December 2021.
The following matters have been considered by the directors in determining the appropriateness of the going concern basis of preparation in the
financial statements:
• The Group’s operations are geographically diversified. Manufacturing operations are located at ten different sites across three continents, significantly lessening
the impact of potential disruption at any single site as a result of the ongoing Coronavirus pandemic. All manufacturing sites continue to remain operational and
production has not been affected by any disruption at any of the Group’s global sites.
• The Group dual or multi-sources key raw materials (substrates, gases, spares and consumables) wherever possible, from a broad range of global suppliers,
reducing the likelihood of potential disruption to production from any single supplier. The Group continues to work closely with suppliers and customers to
manage inventory levels in order to create supply chain resilience against potential disruption. All manufacturing sites continue to remain operational and
production has not been affected by any supply chain disruption.
• The Group’s trading has remained resilient throughout the year ended 31 December 2021 although emerging softness in smartphone related demand, weakness
in 5G infrastructure demand and on-going foreign exchange headwinds have resulted in a decline in revenue for the year to £154,096,000 (2020: £178,016,000)
and an adjusted loss before tax of £8,667,000 (2020: £3,221,000 profit).
• The Group’s net debt (excluding lease liabilities) position of £5,804,000 (2020: £1,923,000 funds) remains low in the context of total available facilities of
£55,900,000 (2020: £55,550,000) with the increase in the net debt position principally reflecting the Group’s investment activities where investment in technology
development and capacity expansion in the second half of 2021 has exceeded cash generated from operations. Net debt (excluding lease liabilities) consists of
£10,791,000 (2020: £24,633,000) of cash net of bank loans of £16,595,000 (2020: £22,740,000) which are repayable over a period to 29 August 2024.
• On 24 January 2019, the Group agreed a new £25,900,000 ($35,000,000) three-year multi-currency revolving credit facility from HSBC Bank plc. On 30 December
2021 the multi-currency revolving credit facility was extended for an additional 15-month period to 30 April 2023 and includes an option that requires HSBC Bank
plc consent to extend the facility for a further 12-month period to 30 April 2024. The Group has complied with all covenants associated with the facility.
• On 29 August 2019, the Group agreed a new £30,000,000 five-year Asset Finance Loan facility from HSBC Bank plc of which £25,000,000 has been drawn. The
Group has complied with all covenants associated with the facility.
• The Group generated cash from operating activities of £15,395,000 (2020: £32,106,000) and its financial forecasts and projections for the period up to and
including 31 December 2023 show that the Group is forecast to continue to comply with its banking covenants and has adequate cash resources to continue
operating for the foreseeable future.
• The Group’s severe but plausible downside financial forecasts have been prepared with significant reductions to future forecast revenues, designed to reflect
severe downside scenarios associated with demand risks for the period to 31 December 2023. The severe but plausible downside scenario, applied to the Group’s
financial forecasts, which take account of current trading and customer demand, assumes a ~17% reduction in 2022 revenue and a ~31% reduction in 2023
revenue partially offset by mitigations within the control of the company, including deferred investment in employee related costs and certain capital projects
across the forecast period. The severe but plausible downside scenario illustrates that the Group is forecast to continue to comply with its banking covenants but
would require either the exercise of the extension option contained in the revolving credit facility from HSBC Bank plc, or refinancing of the revolving credit facility
at the extension option date in April 2023. The severe but plausible downside scenario illustrates that a facility of ~£16,500,000, significantly below the Group’s
current committed revolving credit facility of £25,900,000 could be required in 2023. The Group has a long-standing and trusted relationship with its bankers,
HSBC Bank plc, who remain supportive and who have, at the date of this report, formally extended the Group’s £25,900,000 ($35,000,000) revolving credit facility
until April 2023 with an option, that requires HSBC Bank plc consent, to extend the facility for a further 12-month period. On this basis, the directors believe that
the group has, or will have access, to adequate cash resources to continue operating for the foreseeable future even in a severe but plausible downside scenario.
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Annual Report and Financial Statements 2021
2.2 Going concern
The Group meets its day-to-day working capital and other cash requirements through its bank facilities and available cash. The Group’s cash flow forecasts and
projections, in conjunction with the level of assessed covenant headroom on the Group’s committed bank facilities show that the Group and the Company have
adequate cash resources to continue operating and to meet its liabilities as they fall due for a period of at least 12 months from the date of approval of the financial
statements, such that the directors consider it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements.
2.3 Changes in accounting policy and disclosures
(a) New standards, amendments and interpretations.
The following new standards, amendments and interpretations have been adopted by the Group for the first time for the financial year beginning on 1 January 2021:
• Amendments to IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial Instruments: Recognition and Measurement’, IFRS 7 ‘Financial Instruments: Disclosures, IFRS 4
‘Insurance Contracts’, IFRS 16 ‘Leases’ related to interest rate benchmark reform (phase two) and the issues that arise from the implementation of the reforms,
including the replacement of one benchmark with an alternative one.
• Amendment to IFRS 16 ‘Leases’ which provides an optional practical expedient for lessees from assessing whether a rent concession related to COVID-19 is a
lease modification.
• Amendments to IFRS 16 ‘Leases’ which provides an extension to an optional practical expedient for lessees from assessing whether a rent concession related to
COVID-19 is a lease modification beyond 30 June 2021.
The adoption of these standards, amendments and interpretations has not had a material impact on the financial statements of the Group or parent company.
(b) New standards, amendments and interpretations issued but not effective and not adopted early
A number of new standards, amendments to standards and interpretations which are set out below are effective for annual periods beginning after 1 January 2021
and have not been applied in preparing these consolidated financial statements.
• Amendment to IFRS 3 ‘Business combinations’ to update references to the Conceptual Framework for Financial Reporting without changing the accounting
requirements for business combinations.
• Amendments to IAS 16 ‘Property, plant and equipment’ to prohibit the deduction from cost of property, plant and equipment amounts received from selling items
produced while preparing the asset for its intended use with any such sales and related cost recognised in profit or loss.
• Amendments to IAS 37 ‘Provisions, contingent liabilities and contingent assets’ to specify which costs a company includes when assessing whether a contract will
be loss making.
• Annual improvements to IFRSs 2018-2020 cycle to make minor amendments to IFRS 1 ‘First-time adoption of IFRS’, IFRS 9 ‘Financial Instruments’, IAS 41
‘Agriculture’ and amendments to the illustrative examples accompanying IFRS 16 ‘Leases’.
• IFRS 17 ‘Insurance contracts’ which establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and
supersedes IFRS 4 ‘Insurance Contracts’
• Amendments to IAS 1 ‘Presentation of financial statements’ on classification of liabilities which is intended to clarify that liabilities are classified as either current
or non-current depending upon the rights that exist at the end of the reporting period and amendments to the disclosure of accounting policies which will require
disclosure of material rather than significant accounting policies.
• Amendment to IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ to introduce a new definition for accounting estimates which clarifies that
an accounting estimate is a monetary amount in the financial statements that is subject to measurement uncertainty.
• Amendment to IAS 12 ‘Income taxes’ to clarify the accounting treatment for deferred tax on certain transactions with a narrowing of the scope of the initial
recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences.
The Directors anticipate that at the time of this report none of the new standards, amendments to standards and interpretations are expected to have a material
effect on the financial statements of the Group or parent company.
2.4 Consolidation
The consolidated financial statements comprise the results of IQE plc (the Company) and its subsidiary undertakings, together with the Group’s share of the results
of its associates and joint venture.
Subsidiaries
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 and unrealised gains or losses on transactions between Group companies are eliminated and accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Group.
97
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
2. Significant accounting policies continued
2.4 Consolidation continued
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 of each investor. The nature of the Group’s joint arrangements has been assessed and each joint arrangement
has been determined to be a joint venture. 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.
Gains by the Group on transactions with joint ventures are eliminated against the carrying value of the Group’s interest in its joint ventures to the extent that the gain
does not exceed the carrying amount. In circumstances where a gain exceeds the carrying amount the Group has made an accounting policy choice to recognise the
gain in the comprehensive income statement, subject to an assessment of recoverability of value from the joint venture rather than recognising the gain as deferred
income in the consolidated balance sheet.
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 Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the
acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on
bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The
consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.
Where the fair values of acquired identifiable assets, liabilities and contingent liabilities 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 that result from
new information that existed at the date of acquisition, which if known at the time would have resulted in a different amount being recognised 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 identifiable assets, liabilities and contingent liabilities 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 the acquiree’s identifiable net assets.
Acquisition related costs are expensed as incurred.
2.5 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 but 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 it relates. Any impairment identified is immediately
charged to the Consolidated Income Statement. Subsequent reversals of impairment losses for goodwill are not recognised.
Negative goodwill arising on an acquisition where the fair value of identifiable assets, liabilities and contingent liabilities exceeds the fair value of the consideration is
credited and recognised in the consolidated income statement immediately.
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 the assets over their estimated useful lives of 10 to 15 years. Amortisation is charged
to selling and general administration expenses in the income statement.
The carrying value of patents, trademarks and licences is reviewed for potential impairment if events or circumstances indicate a potential impairment. Any
impairment identified is immediately charged to the Consolidated Income Statement.
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IQE plc
Annual Report and Financial Statements 2021
2.5 Intangible assets
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 refer to the materials consumed; the directly attributable labour; and the directly attributable 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 production volume 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 the development has been released into production. Amortisation is charged to selling and general
administration expenses in the income statement.
The carrying value of capitalised development costs in respect of completed projects is reviewed for impairment if events or circumstances indicate a potential
impairment. Projects that remain under development at the reporting date are reviewed for 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 10 years. Amortisation is charged to selling and general administration expenses in the
income statement.
The carrying value of capitalised software costs is reviewed for potential impairment 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 paid to
utilise third party software are expensed as incurred.
e) Customer contracts recognised on acquisition
Customer contract intangible assets that 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. Amortisation is charged to selling and general administration expenses in the income statement.
The fair value of customer contracts 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 customer contract intangible assets is reviewed for potential impairment if events or circumstances indicate a potential impairment. Any
impairment identified is immediately charged to the Consolidated Income Statement.
2.6 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 property, plant and equipment to its residual
value 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. Depreciation is charged to cost of sales and selling and general administration expenses in
the income statement.
Costs incurred after initial recognition are included in the assets’ carrying amounts or recognised as a separate asset as appropriate only when it is probable that
future economic benefits associated with them will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is
derecognised. All other repairs and maintenance are charged to the income statement during the financial year in which they are incurred.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘profit/loss on disposal of property,
plant and equipment’ in the income statement.
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 if events or circumstances indicate a potential impairment. Any impairment identified is immediately charged to
the Consolidated Income Statement.
99
Financial StatementsWhere innovation starts
Notes to the financial statements continued
For the year ended 31 December 2021
2. Significant accounting policies continued
2.7 Leases
The Group assesses whether a contract is or contains a lease, at inception of the contract. A contract is, or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for consideration.
The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases
(defined as leases with a lease term of 12 months or less), leases of low value assets (such as small items of office furniture and equipment) and leases with variable
rentals not linked to a relevant index (see note 3a). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the
term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
Right-of-use assets and lease liabilities are recognised at the lease commencement date. Right-of-use assets are initially measured at cost, and subsequently
measured at cost less any accumulated depreciation and impairment losses, adjusted for certain remeasurements of the lease liability.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset
or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of
the underlying asset. The depreciation starts at the commencement date of the lease.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the ‘Property, Plant
and Equipment’ policy.
Right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by
reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) when there is a change in future lease payments.
Changes in future lease payments can arise from a change in an index or rate, a change in the assessment of whether a purchase or extension option is reasonably
certain to be exercised or from a change in assessment about whether a termination option is reasonably certain not to be exercised.
The Group did not make any such adjustments during the current year.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are
recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line “Cost of sales” in profit or
loss (see note 3a).
2.8 Impairment of non-financial assets
Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are reviewed for potential impairment
at least annually or more frequently if events or circumstances indicate a potential impairment. Assets that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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 risk adjusted pre-tax discount rate. For the purpose
of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
2.9 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out 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 selling expenses.
2.10 Trade receivables
Trade receivables are amounts due from customers for goods 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.
2.11 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. Bank overdrafts are presented within cash and cash equivalents where the Group
has a right of set-off under its treasury arrangements that are pooled by territory.
2.12 Preference share debt instruments
Preference share financial assets are debt instruments due from a related party (see note 30). Debt instruments are initially recognised at fair value and subsequently
measured at amortised cost on the basis that the financial asset is held with the objective of collecting the contractual cash flows and the contractual terms of the
instrument give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.
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2.13 Financial assets
Financial assets are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the financial instrument and are
derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all the risks and rewards
of ownership.
Classification of financial assets
On initial recognition, a financial asset is classified as measured at amortised cost, fair value through other comprehensive income – debt investment, fair value
through other comprehensive income – equity investment or fair value through profit or loss.
The classification depends on the purpose for which the financial assets were acquired and the classification is determined at the date of initial recognition. Financial
assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected
financial assets are reclassified on the first day of the reporting period following the change in business model.
A financial asset is measured at amortised cost if it meets both of the following conditions:
• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• its contractual terms give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding
Amortised cost financial assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included
in current assets, except for maturities greater than 12 months after the reporting period where the item is classified as a non-current asset. The Group’s financial
assets comprise trade and other receivables (note 2.10), cash and cash equivalents (note 2.11), preference share debt instruments (note 2.12) and contract assets
(note 2.22).
Amortised cost and effective interest method
Financial assets are measured at amortised cost using the effective interest method. The effective interest rate is the rate that discounts estimated future cash
receipts excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of
the debt instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the
cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance.
The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance. Interest income, foreign exchange
gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses (‘ECL’) on trade receivables, contract assets and investments in debt instruments that are measured
at amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective
financial instrument.
Expected credit losses are measured as an allowance equal to 12-month ECL for stage 1 assets, or lifetime ECL for stage 2 or stage 3 assets. An asset moves to stage 2
when its credit risk has increased significantly since initial recognition. In circumstances where credit risk increases to the point that it becomes highly probable that
the debt instrument will not become recoverable, the Group considers that this would represent a default event and moves to stage 3.
The Group recognises lifetime ECL for trade receivables and contract assets. The ECL on these financial assets are estimated based on the Group’s historical credit
loss experience, adjusted for factors that are specific to the debtors including observable data such as changes in arrears or economic conditions that provide an
indication that a debtor is experiencing significant financial difficulty, default or delinquency in payment that correlate with defaults.
For preference share debt instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition. However,
if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial
instrument at an amount equal to twelve-month ECL.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast,
twelve-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months
after the reporting date.
Credit impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is ‘credit-impaired’ when one or
more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. The gross carrying amount of a financial asset is
written off (either partially or in full) to the extent that there is no realistic prospect of recovery.
Significant increase in credit risk – Preference share debt instruments
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring
on the financial instrument at the reporting date with the risk of a default occurring on the financial instrument at the date of initial recognition. In making this
assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-
looking information that is available without undue cost or effort. Forward-looking information considered includes the future prospects of the joint venture entity in
which the Group holds its preference share debt, obtained primarily from financial forecasts and projections prepared by management of the joint venture entity as
well as consideration of various external sources of actual and forecast economic information that relate to the joint venture’s core operations.
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2.13 Financial assets
In particular, the following information is considered when assessing whether credit risk has increased significantly since initial recognition:
• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the joint venture’s ability to
redeem the preference share debt;
• existing or forecast adverse changes in the joint venture’s business plan and financial projections indicating a significant extension to the period prior to
redemption of the preference share debt;
• an actual or expected significant deterioration in the operating results of the joint venture;
• significant increases in credit risk on other financial assets of the joint venture; and
• an actual or expected significant adverse change in the regulatory, political or technological environment that results in a significant decrease in the joint venture’s
ability to redeem the preference share debt.
In the event that the credit risk assessment results in a probable delay in forecast repayment of the debt instrument compared to the original expectation the Group
considers that this represents a significant increase in credit risk.
In circumstances where credit risk increases to the point that it becomes highly probable that the debt instrument will not become recoverable the Group considers
that this would represent a default event.
Measurement and recognition of expected credit losses
The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default.
The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. Exposure
at default is represented by the gross carrying amount of the financial asset at the reporting date.
ECL for financial assets is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash
flows that the Group expects to receive, discounted at the original effective interest rate.
If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the
current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12-month ECL at the
current reporting date.
The Group recognises an impairment gain or loss in profit or loss for financial assets with a corresponding adjustment to the carrying amount in the consolidated
balance sheet.
2.14 Financial liabilities and equity
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the
definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the
Group are recognised at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognised and deducted directly
in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Financial liabilities
Financial liabilities are classified as measured at amortised cost or fair value through profit and loss. A financial liability is classified as fair value through profit and
loss if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at fair value through profit and loss are
measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are measured at amortised
cost using the effective interest method.
Financial liabilities are non-derivative financial liabilities with fixed or determinable payments and they are included in current liabilities, except for maturities greater
than 12 months after the reporting period where the item is classified as a non-current liability. The Group’s financial liabilities comprise trade and other payables
(note 2.15), borrowings (note 2.16) and lease liabilities (note 2.7) in the consolidated balance sheet.
2.15 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables 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.
2.16 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost using the effective interest method.
2.17 Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that take a substantial
period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
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2.18 Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into, and they are subsequently remeasured to their fair value at the end
of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument and, if so,
the nature of the item being hedged. The group designates certain derivatives as either:
• hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges), or
• hedges of a net investment in a foreign operation (net investment hedges)
Cash flow hedges and derivatives that qualify for hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow hedge reserve
within equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within other gains/(losses).
Cash flow hedges and derivatives that do not qualify for hedge accounting
Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss and are included in
other gains/(losses).
Net investment hedges
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective
portion of the hedge is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is
recognised immediately in profit or loss within other gains/(losses). Gains and losses accumulated in equity are reclassified to profit or loss when the foreign
operation is partially disposed of or sold.
2.19 Government grants
Government grants are recognised at fair value when there is reasonable assurance that the Group has complied with the conditions attaching to them and the
grants will be received. Grants related to purchase of assets are treated as deferred income and allocated to the income statement over the useful lives of the related
assets while grants related to expenses are treated as other income in the income statement.
2.20 Share capital and other reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net
of tax, from the proceeds.
Other reserves relate to share based payment transactions.
2.21 Provisions
Provisions are recognised when the Group has a present 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. Restructuring provisions comprise site closure costs and employee termination
payments. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects the time value of
money and the risks specific to the obligation.
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2.22 Revenue recognition
Revenue represents the transaction price specified in a contract with a customer for goods, services and intellectual property licenses provided in the ordinary
course of business net of value added and other sales related taxes.
Standard Customer Products
Revenue is recognised when the goods are delivered and have been accepted by customers. For contracts that permit the customer to return an item, revenue is
recognised to the extent that it is highly probable that a significant reversal in the amount of revenue recognised will not occur.
The amount of revenue recognised is adjusted for expected returns, which are estimated based on historical data for each specific type of product with a refund
liability recognised as part of trade receivables. The Group reviews its estimate of expected returns at each reporting date and updates the amounts of any
liability accordingly.
A receivable is recognised when the goods are delivered, since this is the point in time that the consideration is unconditional because only the passage of time is
required before the payment is due.
Bespoke Customer Products
Revenue is recognised for bespoke customer products with no alternative use where the Group has a guaranteed contractual right to payment on an over time basis
prior to the delivery of goods to the customers’ premises. Revenue is recognised on an input basis by reference to the stage of completion of the manufacturing
process, a process which includes an epitaxial wafer manufacture stage and a metrology and wafer test stage which are both typically completed within a limited
number of days.
The amount of revenue recognised is adjusted for expected returns, which are estimated based on historical data for each specific type of product with a refund
liability recognised as part of trade receivables. The Group reviews its estimate of expected returns at each reporting date and updates the amounts of any
liability accordingly.
The Group operates supplier managed inventory arrangements for certain global customers where the Group is responsible for ensuring that contractually agreed
levels of inventory are maintained at specified locations. The Group has a guaranteed contractual right to payment for the bespoke customer products manufactured
under these arrangements with revenue recognised on an over time basis.
Intellectual Property Licenses
Intellectual property license income relates to the sale of finite and perpetual period licenses.
Revenue is recognised for intellectual property licenses with a right to use over a finite period when control of the license is transferred to the customer in
accordance with the terms of the relevant licensing agreement and collection of the resulting receivable is reasonably assured.
Revenue is recognised for perpetual intellectual property licenses with a right to use when a signed agreement or other persuasive evidence of an arrangement
exists, the intellectual property has been delivered, the license fee is fixed or determinable and collection of the resulting receivable is reasonably assured.
2.23 Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Directors, who oversee the allocation of resources and
the assessment of operating segment performance.
2.24 Finance income and finance costs
The Group’s finance income and finance cost include interest income and interest expense.
Interest income or expense is recognised using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial instrument to the gross carrying amount of the financial asset, or the amortised cost of the
financial liability.
In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit impaired) or
to the amortised cost of the liability. However, for financial assets that have become credit impaired subsequent to initial recognition, interest income is calculated by
applying the effective interest rate to the amortised cost of the financial asset.
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2.25 Pension costs
The Group operates defined contribution pension schemes. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a
separate entity. Contributions are charged in the Consolidated Income Statement as they become payable in accordance with the rules of the scheme. The Group
has no further obligations once the contributions have been made.
2.26 Share based payments
The Group operates a number of equity-settled share-based compensation plans under which the Group receives services from employees as consideration
for equity instruments 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 and as a credit in other reserves in the consolidated statement of changes in equity except for the social security element of the
award which is treated as cash settled with the liability recognised in other taxation and social security within trade and other payables in the consolidated balance
sheet. 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 or hold shares for a specific period of time).
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 consolidated 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 the balance to share premium. 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 charge will be
treated as a cash-settled transaction.
2.27 Foreign currency
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.
2.28 Current and deferred tax
Income tax for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in
other comprehensive income or directly in equity, respectively.
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 research and development tax relief under the RDEC scheme are recognised within operating profit in the
period in which the research and development costs are treated as an expense. 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.
2.29 Investment in subsidiaries
Investments in subsidiaries are held at cost of investment less provision for impairment in the parent company financial statements.
2.30 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.
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2.31 Alternative performance measures
Income Statement
Alternative income statement performance measures are disclosed separately in the financial statements after a number of adjusted non-cash items, non-
operational items and significant infrequent items that would distort period on period comparability where it is deemed necessary by the Director’s to do so to
provide further understanding of the financial performance of the Group. Adjusted items are material items of income or expense that have been shown separately
due to the significance of their nature or amount. The tax impact of adjusted items is calculated applying the relevant enacted tax rate for each adjusted item. Details
of the adjusted items are included in note 5.
Balance Sheet
Alternative balance sheet performance measures for net debt are disclosed separately in the financial statements after adjustments to exclude lease liabilities where
it is deemed necessary by the Director’s to do so to provide further understanding of the financial position, gearing and liquidity of the Group.
Cashflow Statement
Alternative cash flow statement performance measures are disclosed separately in the financial statements that reflect the cash impact of adjusted items included
in alternative income statement performance measures. Adjusted items are material items of income or expense that have been shown separately due to the
significance of their nature or amount. Details of the adjusted items are included in note 5.
3. Critical accounting judgements and key sources of estimation uncertainty
The Group’s principal accounting policies are described in note 2. 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 significant judgement and estimation are set out below:
(a) Critical accounting judgements in applying the Group’s accounting policies
Joint Venture – Evaluation of rights, levels of control and influence
The determination of the level of influence or control that the Group has over a business is a mix of contractually defined and subjective factors that can be critical
to the appropriate accounting treatment of an entity in the Group’s consolidated financial statements. Control or influence is achieved through Board representation
and by obtaining rights of veto over significant decisions relevant to the activities of the entity.
Compound Semiconductor Centre Limited (‘CSC’)
On 9 July 2015 the Group entered into a joint venture agreement with Cardiff University to create the CSC in the United Kingdom. The commercial purpose of the
CSC is the research, development and manufacture of advanced compound semiconductor materials by metalorganic vapour phase epitaxy (‘MOVPE’).
The manufacturing and technical capability of the CSC was established with the Group contributing fixed assets, transferring employees (including the current
Managing Director of the CSC) and licensing intellectual property with Cardiff University contributing cash. The Group also entered into an agreement with CSC that
conveyed to the Group the right to use the CSC’s assets, establishing the Group as the CSC’s cornerstone customer during the early stages of the development of the
CSC’s business (see note 30).
The Shareholder Agreement establishes that the CSC is jointly controlled by the shareholders. Key decisions, defined as part of contractually agreed Board reserved
matters, require approval from directors representing each joint venture partner who have equal Board representation and voting rights.
The Group does not control the CSC such that its 50% equity investment in the joint venture is accounted for using the equity method in accordance with the
accounting policies set out in note 2.
Joint Venture – Right of use asset
The Group established CSC with its joint venture partner as a centre of excellence for the development and commercialisation of advanced compound
semiconductor wafer products.
On establishment of the joint venture, the Group contributed assets as part of its initial investment and entered into an agreement with the joint venture that
has been extended in the current year and conveys to the Group the right to use the assets of the joint venture for a minimum period up to 31 March 2023. This
agreement, which contains rights attaching to the use of the joint venture’s assets, meets the definition of a lease. In the Group’s judgement, due to the variable
nature of the lease payments, which are directly linked to the actual usage of the assets, the lease payments continue to be excluded from the measurement of right
of use assets and lease liabilities with the variable lease costs recognised in operating expenses in the income statement as incurred.
Joint Venture – Classification of preference share debt
The Group classifies its preference share financial assets due from the CSC as debt instruments rather than treating the preference shares as part of the Group’s
net investment in the CSC. This is on the basis that these preference shares, redeemable at par, contingent on the generation of cash by CSC, are not deemed to be
tantamount to equity.
Preference share funding was provided to the CSC by the joint venture partners to accelerate the development and growth of the CSC’s business. The contractual
arrangements between the joint venture partners and the CSC require that any surplus cash generated by the CSC is used to redeem the preference share funding
provided by the joint venture partners, as envisaged in the CSC business plan contained within the original Joint Venture Shareholder Agreement.
Upon transition to IFRS 9, the Group assessed that this financial asset meets the requirements to be measured at amortised cost in line with the treatment
previously adopted under IAS 39. The instrument is held within a business model whose sole objective is to collect the contractual cash flows. These cash flows, in
turn, represent solely payments of principal and interest on the principal amount outstanding.
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(a) Critical accounting judgements in applying the Group’s accounting policies
Joint Ventures – Credit risk associated with preference share debt
As explained in note 2.13, expected credit losses are measured as an allowance equal to 12-month ECL for stage 1 assets, or lifetime ECL for stage 2 or stage 3 assets.
The Group has assessed, based on its joint venture’s latest forecast, that recovery of the preference share debt within a reasonable period remains unlikely such
that the credit risk remains at a level where the definition of default has been met and the asset continues to be classified at stage 3. In making this assessment,
qualitative and quantitative reasonable and supportable forward-looking information associated with the forecast future financial performance and cash generation
of CSC has been used (see note 3.6 for details of the calculation of the loss allowance and the associated impairment of the financial asset).
Intangible assets – Technology development costs and patents
a) CREO™ filter technology assets
The Group has cREO™ filter technology related development cost and patent assets totalling £4,692,000 where the Group has taken the decision to pause the
development and commercialisation of the associated technology.
IQepiMo, the technology developed for high-performance bulk acoustic wave (‘BAW’) RF filters uses the Group’s cREO™ technology platform and is capable of
delivering improved BAW filter performance, particularly at higher frequency ranges used within 5G applications. Although the developed technology has a number
of potential performance advantages when compared to incumbent technology the level of customer and partner engagement that is required to refine the
technology for high-end BAW filters has declined in the current year, a position that has led to the decision in 2021 to significantly scale back the development and
commercialisation of the technology given the lack of a clear near-term route to the delivery of commercial volumes and cash flows.
The current lack of visibility on the timeline to commercialise the technology and the decision to pause development and commercialisation activities has resulted
in a non-cash intangible asset charge of £4,692,000 that has been charged to ‘selling, general and administrative expenses’ in the consolidated income statement
following the write-down of the development costs and patent assets to £nil.
b) Photonic quasi-crystal technology assets
The Group has photonic quasi-crystal technology related development cost and patent assets totalling £2,716,000 where the Group has taken the decision to pause
the development and commercialisation of the associated technology.
Photonic quasi-crystal technology provides the possibility to create on-wafer optics for advanced sensing applications using the Group’s Nanoimprint lithography
technology. Although Photonic quasi-crystal technology has a number of potential advanced sensing applications the level of customer and partner engagement
that is required to develop the technology has remained low, a position that has led to the decision in 2021 to significantly scale back the development and
commercialisation of the technology given the lack of a clear near-term route to the delivery of commercial volumes and cash flows.
The current lack of visibility on the timeline to commercialise the technology and the decision to pause development and commercialisation activities has resulted
in a non-cash intangible asset charge of £2,716,000 that has been charged to ‘selling, general and administrative expenses’ in the consolidated income statement
following the write-down of development costs and patent assets to £nil.
Intangible assets – Technology development assets not yet available for use
Intangible assets include development cost assets not yet available for use of £3,046,000 (2020: £8,157,000) which have been reviewed for impairment as at the
reporting date.
The Group is committed to the technical completion and commercialisation of each of its technology development assets which are governed and controlled
by reference to a combination of technical development objectives and market and customer related commercial plans. The recoverable amount of each
technology development project is determined based on value in use calculations, using cash flow projections in line with the expected useful economic life of
each asset. The value in use calculations are based on management approved risk-adjusted cash flow forecasts for each project and comprise assumptions that
include cost to complete forecasts for each technology development and commercial forecasts relating to the level of market penetration, revenue and cost of
production for each technology.
Adjustments to profit
Alternative performance measures are disclosed separately in the financial statements after a number of adjusted exceptional, non-cash, non-operational or
significant and infrequent items that would distort period on period comparability where it is deemed necessary by the Director’s to do so to provide further
understanding of the financial performance of the Group. Details of the adjusted items are included in note 5.
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(b) Critical accounting estimates and key sources of estimation uncertainty
3.1 Goodwill impairment testing
Wireless
Following the assessment of the goodwill allocated to the Wireless cash generating unit (‘CGU’); to which goodwill of £57,173,000 (2020: £56,704,000) is
allocated, the directors consider the recoverable amount of goodwill allocated to the Wireless CGU to be sensitive to the achievement of the Group’s five-year
internal forecasts. The five-year forecasts comprise forecasts of revenue, material costs and site manufacturing labour and overhead costs based on current
and anticipated market conditions that have been considered and approved by the Board. Whilst the Group is able to manage most of its Wireless CGU costs,
significant elements of the Wireless revenue forecasts are inherently linked to global demand for smartphones and the adoption of 5G technology where
uncertainty about both the timing and level of growth remains such that the revenue growth rates used within the forecasts are a key sensitivity given current
consumer, market and regulatory dynamics.
The sensitivity analysis in respect of the recoverable amount of ‘Wireless’ goodwill is presented in note 13.
Photonics
Following the assessment of the goodwill allocated to the Photonics cash generating unit (‘CGU’); to which goodwill of £7,124,000 (2020: £7,028,000) is allocated,
the directors consider the recoverable amount of goodwill allocated to the Photonics CGU to be sensitive to the achievement of the Group’s five-year internal
forecasts. The five-year forecasts comprise forecasts of revenue, material costs and site manufacturing labour and overhead costs based on current and anticipated
market conditions that have been considered and approved by the Board. Whilst the Group is able to manage most of its Photonics CGU costs, significant elements
of the Photonics revenue forecasts are inherently linked to global demand for smartphones, the proliferation of VCSEL technology to advanced sensing applications
beyond existing 3D sensing, the adoption of high definition infrared imaging and sensing in health monitoring and environmental applications and the adoption of
5G technology for telecommunication and data communication where uncertainty about both the timing and level of growth remains such that the revenue growth
rates used within the forecasts are a key sensitivity given current consumer, market and regulatory dynamics.
The sensitivity analysis in respect of the recoverable amount of ‘Wireless’ goodwill is presented in note 13
3.2 Useful economic lives of development cost intangible assets
The periods of amortisation used for product and process development cost assets require estimates to be made on the estimated useful economic lives of the
intangible assets to determine an appropriate rate of amortisation. Capitalised development costs are amortised in line with the expected production volume profile
of the products to which they relate over the period during which economic benefits are expected to be received which is typically between 3 – 8 years.
The carrying value of development cost intangible assets is £27,944,000 (2020: £35,803,000). The amortisation charge for development cost intangible assets in the
current year is £6,490,000 (2020: £6,430,000). If useful economic lives of development cost intangible assets were reduced by 1 year across the whole portfolio of
assets the impact on current year amortisation would be to increase the charge by £1,189,000 (2020: £1,063,000) to £7,679,000 (2020: £7,493,000).
3.3 Valuation of lease liabilities and right of use assets
The application of IFRS 16 requires the Group to make judgments and estimates that affect the valuation of the lease liabilities and the valuation of right-of-use
assets that includes determining the contracts in scope of IFRS 16, determining the contract term and determining the interest rate used for discounting of future
cash flows.
The lease term determined by the Group generally comprises the non-cancellable period of lease contracts, periods covered by an option to extend the lease if
the Group is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Group is reasonably certain not to exercise
that option.
Exercise of extension options, principally existing in the Group’s property leases are assumed to be reasonably certain, except for the Group’s Newport facility where
it has been assumed that it is reasonably certain that the Group will exercise its buy-out option at the end of the initial lease term. The same term applied to the
length of the lease contract has been applied to the useful economic life of right-of-use assets.
The present value of the lease payments applicable to the Group’s portfolio of property and plant leases has been determined using a discount rate that represents
the Group’s incremental rate of borrowing, assessed as 2.25% – 2.65% depending on the lease characteristics.
If the incremental rate of borrowing was decreased by 0.10% the impact would be to increase the lease liability by £246,000 (2020: £227,000).
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3.4 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, capital expenditure and the utilisation of tax losses for each relevant tax jurisdiction
where the Group operates.
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 Group assesses future forecast taxable profit as probable by reference to its five-year plan using underlying cash flow forecasts based on
those used in the Group’s goodwill impairment review. Any potential deferred tax asset assessed by reference to the level of future forecast taxable profit over this
five-year period has, in the current year, been restricted to the extent of taxable temporary differences due to the Group’s current financial performance and recent
history of taxable losses in its UK, US and Singapore operations.
The Group did not recognise deferred income tax assets of £31,260,000 (2020: £17,767,000) in respect of losses amounting to £134,808,000 (2020: £78,164,000)
that can be carried forward against future taxable income. The deferred tax asset can be recognised if sufficient profits from the same trade arise in future periods.
3.5 Share based payments
Share based payment charges associated with long-term incentive plans are calculated taking account of an assessment of the achievability of relevant performance
conditions. The share-based payment charge for long-term incentive awards would be £365,000 (2020: £1,032,000) greater in 2021 if it was assumed that all
performance criteria for existing awards would be met.
3.6 Preference share debt – Calculation of loss allowance
The Group classifies its preference share financial assets due from its joint venture, CSC, as debt instruments.
The carrying value of the Group’s preference share debt is £nil (2020: £nil) after the recognition of expected credit losses and the application of the loss absorption
requirements of IAS 28.38 (see note 3.9).
Expected credit loss impairment continues to be assessed at £7,922,000 (2020: £7,922,000).
When measuring expected credit loss on the preference share debt due from CSC the Group uses reasonable and supportable forward-looking information, which is
primarily based on assumptions about forecast future financial performance of CSC. The ECL model calculation is based on three key inputs: exposure at default, loss
given default, and probability of default. Exposure at default is the carrying amount of the preference share debt.
Loss given default is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the Group expect
to receive, considering cash flows from any collateral.
Probability of default is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and
expectations of the future financial performance of CSC.
Default events and associated probability of default is assessed by reference to a range of scenarios based principally on assumptions and expectations of the
future financial performance of CSC that have been derived from CSC’s Board approved 2022 Budget extrapolated over the repayment period using a long-term
growth rate of 2%.
Following a review of a combination of factors, including CSC’s progress and achievement against its business objectives, current cash flow forecasts for CSC and the
capacity of CSC to redeem the debt, the Group has assessed that a position of default continues to exist on this instrument (see note 3(a)) and as a result, lifetime
ECL continues to be calculated.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of the debt instrument and is the difference
between the contractual cash flows due and those that the Group expect to receive, considering cash flows from any collateral.
The result of this assessment is that the Group considers the ECL to equal the carrying amount of the instrument and therefore the financial asset remains
fully impaired.
3.7 Preference share debt – Long term interest
The Group treats its preference share financial assets due from its joint venture, CSC, as a long-term interest in an equity accounted investee on the basis that the
factors that have led to the recognition of an expected credit loss impairment (note 3.6) indicate that repayment of the preference share debt is no longer expected
in the foreseeable future.
As a long-term interest in an equity accounted investee, the group has applied the loss absorption requirement in IAS 28.38 to the carrying amount of the preference
share financial asset, after the application of the expected credit loss described in note 3.6. Application of the loss absorption requirements after taking account of
expected credit losses continue to result in a position where the Group recognises no further allocation of joint venture losses to the preference share financial asset
as the carrying value of the preference share debt is £nil (2020: £nil) after recognition of expected credit losses.
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Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
4. Segmental analysis
4.1 Description of segments and principal activities
The Chief Operating Decision Maker is defined as the Executive Management Board. The Executive Management Board, consisting of the Chief Executive Officer,
Chief Financial Officer, Chief Operations Officer, Chief Technology Officer, Executive VP Global Business Development, Wireless and Emerging Products, Executive VP
Global Business Development, Photonics & Infrared and the Global Human Resources Director consider the group’s performance from a product perspective and
have identified three primary reportable segments:
• Wireless – this part of the business manufactures and sells compound semiconductor material for the wireless market which includes radio frequency devices that
enable wireless communications.
• Photonics – this part of the business manufactures and sells compound semiconductor material for the photonics market which includes applications that either
transmit or sense light, both visible and infrared.
• CMOSS++ – this part of the business manufactures and sells advanced semiconductor materials related to silicon which include the combination of the advanced
properties of compound semiconductors with those of lower cost of silicon technologies.
The Executive Management Board primarily use revenue and a measure of adjusted operating profit to assess the performance of the operating segments. Measures
of total assets and liabilities for each reportable segment are not reported to the Executive Management Board and therefore have not been disclosed.
4.2 Revenue – Disaggregation of segmental revenue from contracts with customers
The group derives revenue from the transfer of goods, services and intellectual property over time and at a point in time. Revenues from external customers derive
from the sale of standard or bespoke compound semiconductor material or from the sale or licensing of intellectual property.
Disaggregate Segment Revenue
Timing of revenue recognition
At a point in time
Standard customer products
Intellectual property licenses
Over time
Bespoke customer products
Total revenue
Disaggregate Segment Revenue
Timing of revenue recognition
At a point in time
Standard customer products
Intellectual property licenses
Over time
Bespoke customer products
Total revenue
Wireless
2021
£’000
Photonics
2021
£’000
CMOSS++
2021
£’000
–
–
83,217
83,217
Wireless
2020
£’000
–
–
94,193
94,193
11,760
–
56,307
68,067
–
–
2,812
2,812
Photonics
2020
£’000
CMOSS++
2020
£’000
14,088
–
67,539
81,627
–
–
2,196
2,196
Total
2021
£’000
11,760
–
142,336
154,096
Total
2020
£’000
14,088
–
163,928
178,016
Included within bespoke customer product revenue is revenue of £63,725,000 (2020: £89,900,000) that relates to supplier managed inventory arrangements where
billing occurs from the earlier of a specified contractual backstop date following delivery or when the product is drawn from inventory by the customer.
Revenues of approximately £54,924,000 (2020: £89,900,000) are derived from two customers (2020: three) who each account for greater than 10% of the Group’s
total revenues:
Customer
Customer 1
Customer 2
Customer 3
Segment
Wireless
Wireless
Photonics
2021
£’000
34,946
8,801
19,978
2021
% revenue
23%
6%
13%
2020
£’000
29,608
31,701
28,591
2020
% revenue
17%
18%
16%
There are no customers in the CMOS++ segment that account for greater than 10% of the Group’s total revenue.
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Annual Report and Financial Statements 2021
4.3 Adjusted Operating Profit
Adjusted operating profit excludes the effects of significant non-cash, non-operational or significant and infrequent items of income and expenditure which may have
an impact on the quality of earnings such as restructuring costs, legal expenses and impairments where the impairment is the result of an isolated, non-recurring
event. Adjusted operating profit also excludes the effects of equity settled share-based payments.
Finance costs are not allocated to segments because treasury and the cash position of the group is managed centrally.
Revenue
Wireless
Photonics
CMOS++
Revenue
Adjusted operating (loss)/profit
Wireless
Photonics
CMOS++
Central corporate costs
Adjusted operating (loss)/profit
Adjusted items (see note 5)
Operating loss
Reversal/share of losses of joint venture accounted for using the equity method
Finance costs
Loss before tax
2021
£’000
83,217
68,067
2,812
2020
£’000
94,193
81,627
2,196
154,096
178,016
7,305
1,737
(586)
(14,910)
(6,454)
(13,524)
(19,978)
–
(2,213)
(22,191)
11,393
9,080
(714)
(14,373)
5,386
(10,903)
(5,517)
3,788
(2,165)
(3,894)
111
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
4. Segmental analysis continued
4.4 Geographical information
Revenue 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
Non-current assets by location
USA
Singapore
Taiwan
UK
2021
£’000
99,842
99,817
25
13,476
2,166
3,893
1,598
3,643
2,176
40,778
10,311
7,217
21,247
2,003
2020
£’000
118,298
118,251
47
15,250
2,291
6,056
2,131
2,850
1,922
44,468
6,517
3,679
28,348
5,924
154,096
178,016
Property, plant and equipment
Intangible assets
Right of use assets
2021
£’000
40,824
6,283
31,188
51,435
2020
£’000
42,386
6,811
21,943
55,089
129,730
126,229
2021
£’000
66,177
9,623
4,268
15,798
95,866
2020
£’000
71,010
9,801
5,900
19,061
105,772
2021
£’000
10,071
–
826
33,370
44,267
2020
£’000
4,998
–
268
32,073
37,339
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Annual Report and Financial Statements 2021
5. Adjusted profit measures
The Group’s results report certain financial measures after a number of adjusted items that are not defined or recognised under IFRS including adjusted operating
profit, adjusted profit before income tax and adjusted earnings per share. The Directors believe that the adjusted profit measures provide a useful comparison of
business trends and performance and allow management and other stakeholders to better compare the performance of the Group between the current and prior
year, excluding the effects of certain non-cash charges, non-operational items and significant infrequent items that would distort period on period comparability. The
Group uses these adjusted profit measures for internal planning, budgeting, reporting and assessment of the performance of the business.
The tables below show the adjustments made to arrive at the adjusted profit measures and the impact on the Group’s reported financial performance.
Revenue
Cost of sales
Gross profit
SG&A
Impairment loss on financial assets
Profit on disposal of PPE
Operating (loss)/profit
Reversal of JV losses
Finance costs
(Loss)/profit before tax
Taxation
(Loss)/profit for the period
Share based payments
Chief Executive Officer Recruitment
Restructuring
Impairment – intangibles
Onerous contract
Patent dispute legal fees
Impairment – financial assets
Share of JV losses – financial asset
Total
The nature of the adjusted items is as follows:
Adjusted
Results
£’000
154,096
(135,325)
18,771
(25,302)
–
77
(6,454)
–
(2,213)
(8,667)
(10,614)
(19,281)
Pre-tax
Adjustment
£’000
(1,691)
(741)
(3,681)
(7,411)
–
–
–
–
(13,524)
Adjusted
Items
£’000
–
(1,127)
(1,127)
(12,397)
–
–
(13,524)
–
–
(13,524)
1,803
(11,721)
Tax
Impact
£’000
(13)
–
–
1,816
–
–
–
–
1,803
2021
Reported
Results
£’000
154,096
(136,452)
17,644
(37,699)
–
77
(19,978)
–
(2,213)
(22,191)
(8,811)
(31,002)
2021
Adjusted
Results
£’000
(1,704)
(741)
(3,681)
(5,595)
–
–
–
–
(11,721)
Adjusted
Results
£’000
178,016
(144,689)
33,327
(27,759)
–
(182)
5,386
–
(2,165)
3,221
(519)
2,702
Pre-tax
Adjustment
£’000
(265)
–
(162)
(6,537)
(1,840)
1,689
(3,788)
3,788
(7,115)
Adjusted
Items
£’000
–
(177)
(177)
(6,938)
(3,788)
–
(10,903)
3,788
–
(7,115)
1,520
(5,595)
Tax
Impact
£’000
210
–
39
1,242
350
(321)
–
–
1,520
2020
Reported
Results
£’000
178,016
(144,866)
33,150
(34,697)
(3,788)
(182)
(5,517)
3,788
(2,165)
(3,894)
1,001
(2,893)
2020
Adjusted
Results
£’000
(55)
–
(123)
(5,295)
(1,490)
1,368
(3,788)
3,788
(5,595)
• Share based payments – The charge (2020: charge) relates to share based payments recorded in accordance with IFRS 2 ‘Share based payment’ of which
£1,127,000 (2020: £177,000) has been classified within cost of sales in gross profit and £564,000 (2020: £88,000) has been classified as selling, general and
administrative expenses in operating profit. £46,000 cash has been defrayed in the year (2020: £nil) in respect of employer social security contributions following
the exercise of unapproved employee share options.
• Chief Executive Officer recruitment – The charge of £741,000 include settlement costs and legal fees of £319,000 associated with the transition of the former
Chief Executive Officer to a non-executive role and external recruitment fees of £422,000. Cash costs defrayed in the year total £152,000 (2020: £nil)
• Restructuring – The charge of £3,681,000 relates to restructuring costs relating to the announced closure of the Group’s manufacturing facility in Pennsylvania,
USA and the Group’s manufacturing facility in Singapore.
• Restructuring charges of £661,000 (2020: £162,000) relate to employee related costs relating to the announced closure of the Group’s manufacturing facility
in Pennsylvania, USA. The charge was classified as selling, general and administrative expenses within operating loss. Cash costs defrayed in the year total
£342,000 (2020: £nil).
• Restructuring charges of £3,020,000 (2020: £nil) consist of employee related costs of £1,540,000 (2020: £nil) and site decommissioning costs of £1,480,000
(2020: £nil) relating to the announced closure of the Group’s manufacturing facility in Singapore. The charge was classified as selling, general and administrative
expenses within operating loss. Cash costs defrayed in the year total £nil (2020: £nil).
113
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
5. Adjusted profit measures continued
• Impairment of intangibles – The non-cash charge of £7,411,000 (2020: £6,537,000) relates to the impairment of certain technology development costs and
intellectual property patent assets.
• The non-cash impairment charge of £7,411,000 relates to the impairment of cREO™ filter technology development costs and patent assets totalling £4,692,000
and the impairment of Photonic quasi crystal technology related development costs and patent assets totalling £2,716,000 where the Group has taken the
decision to pause development related activities given the current lack of visibility over the timeline to commercialisation of each of the technologies.
• The prior period non-cash impairment charge of £6,537,000 relates to the Group’s non-filter related cREO™ patent and development costs and arose from a
lack of intent to continue relevant development activities following the refocus of resource and investment into cREO™ filter related development activities.
• Onerous contract – The prior period onerous contract provision of £1,840,000 represents the cost of minimum guaranteed future royalty payments associated
with the use of cREO™ technology acquired from Translucent Inc.
• Patent dispute legal costs – The prior period credit related to a settlement agreement of £1,825,000 (US$2,500,000) associated with legal costs incurred by the
Group that was negotiated with the plaintiff following an arbitration panel ruling in favour of the Group on 17 January 2020. The settlement net of final legal costs
of £49,000 has been cash received in 2021. The prior period credit also included an increase in insurance income of £410,000 following final settlement with the
Group’s insurers partially offset by legal costs incurred during the prior year of £546,000. Insurance income of £410,000 and legal costs of £546,000 were cash
received and cash paid in the prior year.
• Impairment of financial asset – The prior period non-cash charge of £3,788,000 (2020: £4,134,000) related to the increase in the expected credit loss associated
with the Group’s preference share financial asset due from its joint venture, CSC.
• Reversal/share of joint venture losses (financial asset) – The Group treats its preference share financial assets due from its joint venture, CSC, as a long-term
interest in an equity accounted investee and is required to apply the loss absorption requirements of IAS 28.38 to the carrying amount of the preference share
financial asset, after the application of any expected credit losses as described above. Application of the loss absorption requirements following the increase in
expected credit losses in the prior year resulted in the reversal of the Group’s share of joint venture losses previously allocated to the preference share financial
asset which resulted in a non-cash credit of £3,788,000 in the prior year.
The cash impact of adjusted items in the consolidated cash flow statement represents cash received in respect of the patent dispute settlement net of final legal
costs, onerous contract royalty payments associated with the Group’s cREO™ technology, payment of employee related costs associated with the announced closure
of the Group’s site in Pennsylvania, national insurance paid in respect of employee share option exercises and payment of certain costs related to recruitment of the
group’s new Chief Executive Officer totalling £943,000 (2020: exceptional cash costs: £867,000).
Adjusted EBITDA (adjusted earnings before interest, tax, depreciation and amortisation) is calculated as follows:
Loss attributable to equity shareholders
Non-controlling interest
Finance costs
Tax
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible fixed assets
Loss/(profit) on disposal of PPE
Adjusted Items
Share based payments
Chief Executive Officer Recruitment
Restructuring
Impairment of intangibles
Patent dispute settlement and legal costs
Onerous contract provision
Impairment of financial asset
Share of joint venture losses (financial asset)
Adjusted EBITDA
Share based payments
Chief Executive Officer Recruitment
Restructuring
Patent dispute settlement and legal costs
Onerous contract provision
Impairment of financial asset
Share of joint venture losses (financial asset)
EBITDA
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Annual Report and Financial Statements 2021
2021
£’000
(31,002)
–
2,213
8,811
13,309
3,854
8,047
(77)
13,524
1,691
741
3,681
7,411
–
–
–
–
18,679
(1,691)
(741)
(3,681)
–
–
–
–
12,566
2020
£’000
(3,271)
378
2,165
(1,001)
12,983
3,681
7,869
182
7,115
265
–
162
6,537
(1,689)
1,840
3,788
(3,788)
30,101
(265)
–
(162)
1,689
(1,840)
(3,788)
3,788
29,523
6. Operating loss
The operating loss is stated after charging/(crediting):
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Impairment of intangible assets
Impairment of non-current financial assets
Services provided by auditors
Expenses relating to variable lease payments not included in the measurement of the lease liability
Research and development
Exchange losses/(gains)
Share based payments
Cost of raw materials consumed
(Profit)/loss on disposal of fixed assets
Adjusted items
2021
£’000
13,309
3,854
8,047
7,411
–
382
6,234
1,968
2,378
1,691
59,466
(77)
4,422
2020
£’000
12,983
3,681
7,869
6,537
3,788
434
6,365
897
961
265
72,857
182
313
‘Expenses relating to variable lease payments not included in the measurement of the lease liability principally relate to the variable cash costs of production based
on usage that are payable to the Group’s joint venture, CSC, associated with the Group’s right of use of the joint venture’s assets (note 3 and 32).
Services provided by auditors
Fees payable to the company’s auditor and its associates for the audit of the parent company
and consolidated financial statements
Fees payable to the company’s auditor and its associates for other services:
• Audit of the company’s subsidiaries
• Audit related assurance services
• Tax compliance and other advisory services
Total KPMG LLP (group auditors)
2021
£’000
2020
£’000
335
27
20
–
382
198
27
20
189
434
115
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
7. Employee costs
Employee costs (including directors’ remuneration)
Wages and salaries
Social security costs
Other pension costs
Share based payments
Average number of employees (including directors)
Manufacturing
Selling, general and administrative
2021
£’000
37,743
3,279
1,801
1,691
44,514
2020
£’000
37,193
3,207
1,833
265
42,498
2021
Number
2020
Number
546
134
680
536
122
658
Directors’ emoluments, share options and other long-term incentive plan details, including details of all outstanding options and long-term incentive awards and the
value of director pension contributions paid are set out in the Remuneration Report where the relevant disclosures have been highlighted as audited. Audited tables
include ‘Single total figure of remuneration for Executive Directors’ on page 67, ‘Scheme interest awarded in 2021’, ‘Exit payments made in the year’, ‘Single total
figure of remuneration for Non-Executive Directors’ on page 69 and ‘Share Options” on page 71.
Key management within the Group comprises members of the Executive Management Board and Non-Executive Directors. Compensation to key management in
2021 totalled £2,404,031 (2020: £3,574,000), consisting of emoluments and other benefits in kind of £2,315,815 (2020: £3,507,000) and pension contributions of
£88,216 (2020: £67,000). The charge for share based payment awards to key management totalled £705,681 (2020: £316,018).
8. Finance (costs)/income
Bank and other loans
Interest expense on lease liabilities
2021
£’000
(905)
(1,308)
(2,213)
2020
£’000
(949)
(1,216)
(2,165)
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Annual Report and Financial Statements 2021
9. Taxation
Income tax expense
Current tax on profits for the year
Total current tax charge
Origination and reversal of temporary differences
Adjustment in respect of prior years
Total deferred tax charge/(credit)
Total tax charge/(credit)
2021
£’000
1,124
1,124
8,199
(512)
7,687
8,811
2020
£’000
1,132
1,132
(1,425)
(708)
(2,133)
(1,001)
The tax on the Group’s loss before tax differs from the theoretical amount that would arise from applying the standard rate of corporation tax in the UK of 19.00%
(2020: 19.00%) as follows:
Loss on ordinary activities before taxation
Tax charge at 19.00% thereon (2020: 19.00%)
Effects of:
Expenses not deductible for tax purposes
Overseas tax rate differences
Utilisation of previously unrecognised losses
Tax losses for which no deferred tax asset was recognised
Derecognition of previously recognised deferred tax assets
Share option schemes
Pre-measurement of deferred tax – change in UK tax rate
Adjustments in respect of prior years
Total tax (charge)/credit for the year
2021
£’000
(22,191)
4,216
(984)
196
–
(4,135)
(8,190)
(426)
–
512
(8,811)
2020
£’000
(3,894)
740
(303)
112
300
(264)
(825)
159
374
708
1,001
Recognition of deferred tax assets is based on an assessment of future cash flow forecasts and the associated profitability of the Group’s operations, an assessment
which has restricted the ability of the Group to recognise deferred tax assets for current year UK, US and Singapore trading losses and has resulted in the partial
reversal and de-recognition of previously recognised UK and US tax losses.
Deferred tax asset recognition has been restricted in the UK to reflect future forecast profitability, an assessment that includes the impact of the Group’s
consolidation and investment in central and functional roles in the UK. As a result, lower utilisation of UK deferred tax assets is projected which has restricted the
ability to recognise deferred tax assets for current year losses and resulted in the partial reversal and de-recognition of previously recognised UK tax losses.
Deferred tax asset recognition has been restricted in the US to reflect future forecast profitability, an assessment that includes the impact of the Group’s
consolidation of its US manufacturing operations and the continued shift in the balance of future forecast manufacturing and hence profits from the Group’s
US operations to its UK and Asian operations. As a result, lower utilisation of US deferred tax assets is projected which has restricted the ability to recognise deferred
tax assets for current year losses and resulted in the partial reversal and de-recognition of previously recognised US tax losses.
Deferred tax asset recognition has been restricted in Singapore due to the announced closure and planned cessation of operations at the Singapore manufacturing
site in 2022.
The share option schemes amount shown above represents the change in the expected tax impact on the exercise of options, principally reflecting the reduction in
future corporation tax deductions associated with a reduction in the number of options where performance criteria are expected to be achieved.
The Group’s results report certain financial measures after a number of adjusted items with a tax impact of £1,803,000 credit (2020: £1,520,000 credit) as detailed
in note 5.
Finance Act 2021, which was substantively enacted on 24 May 2021, included legislation to increase the rate of corporation tax to 25% from 1 April 2023.
Accordingly, the closing UK deferred tax asset in the financial statements has been recognised in accordance with the rate enacted as part of the Finance Act 2021
with any timing differences expected to reverse on or after 1 April 2023 recognised at a corporation tax rate of 25%.
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.
Amounts recognised directly in equity
Aggregate current and deferred tax arising in the period and not recognised in net profit or loss or other
comprehensive income but directly debited or credited to equity:
Deferred tax: Share options
Total tax charge to equity for the year
2021
£’000
(93)
(93)
2020
£’000
57
57
117
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
10. Deferred Taxation
Deferred tax
At 1 January
Income statement (charge)/credit recognised in the year
Tax charge recognised directly in equity
Exchange differences
At 31 December
2021
£’000
5,767
(7,687)
(93)
(47)
(2,060)
2020
£’000
3,819
2,133
57
(242)
5,767
The amount of deferred tax asset expected to unwind within the next twelve months is £nil (2020: £1,058,000) in relation to utilisation of tax losses. The movement
in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Group
Deferred tax liabilities
At 1 January 2020
Credit to income statement
Exchange differences
At 31 December 2020
(Charge)/credit to income statement
Exchange differences
At 31 December 2021 before set-off
Set-off of tax*
At 31 December 2021 after set-off
Deferred tax assets
At 1 January 2020
Charged to income statement
Charged to equity
Exchange differences
At 31 December 2020
Charged to income statement
Charged to equity
Exchange differences
At 31 December 2021 before set-off
Set-off of tax*
At 31 December 2021 after set-off
Accelerated
Capital
Allowances
£’000
(10,851)
903
153
(9,795)
(1,493)
(82)
(11,370)
Intangibles
£’000
(5,031)
321
14
(4,696)
561
(20)
(4,155)
Tax
Losses
£’000
18,701
886
–
(427)
19,160
(6,216)
–
52
12,996
Other
£’000
1,000
23
57
18
1,098
(539)
(93)
3
469
Total
£’000
(15,882)
1,224
167
(14,491)
(932)
(102)
(15,525)
13,465
(2,060)
Total
£’000
19,701
909
57
(409)
20,258
(6,755)
(93)
55
13,465
(13,465)
–
*
Deferred tax assets and deferred tax liabilities can only be offset in the statement of financial position if the entity has the legal right to settle current tax amounts on a net basis and the
deferred tax amounts are levied by the same taxing authority on the same entity or different entities that intend to realise the asset and settle the liability at the same time.
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 Group assesses future forecast taxable profit as probable by reference to its five-year plan using underlying cash flow forecasts based on
those used in the Group’s goodwill impairment review. Any potential deferred tax asset assessed by reference to the level of future forecast taxable profit over this
five-year period has, in the current year, been restricted to the extent of taxable temporary differences due to the Group’s current financial performance and recent
history of taxable losses in its UK, US and Singapore operations.
The Group did not recognise deferred income tax assets of £31,260,000 (2020: £17,767,000) in respect of losses amounting to £134,808,000 (2020: £78,164,000)
that can be carried forward against future taxable income. The deferred tax asset can be recognised if sufficient profits from the same trade arise in future periods.
Tax losses in the UK totalling £71,530,000 (2020: £61,778,000) have no date of expiry. Tax losses in Singapore totalling £20,714,000 (2020: £12,396,000) have no date
of expiry. Tax losses in the US can be carried forward against future taxable income for 20 years before expiring. Of the Group’s total US tax losses of £95,175,000
(2020: £96,178,000) losses amounting to £8,975,905 and £7,544,665 expire in 2022 and 2023.
118
IQE plc
Annual Report and Financial Statements 2021
Deferred tax liabilities have not been recognised for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries as
such amounts are permanently reinvested.
A credit of £376,000 (2020: £291,000) has been recognised within operating profit in relation to claims made under the R&D Expenditure Credit Scheme (RDEC) in
the UK.
Company
Deferred tax assets
At 1 January 2020
Credited/(charged) to income statement
Charged to equity
At 31 December 2020
(Charged)/credited to income statement
Charged to equity
At 31 December 2021
11. Dividends
No dividend has been paid or proposed in 2021 (2020: £nil).
12. Loss per share
Tax
Losses
£’000
2,546
1,157
–
3,703
(3,703)
–
–
Share
Options
£’000
Other
Timing
Differences
£’000
67
190
26
283
(124)
(46)
113
24
(35)
–
(11)
25
–
14
Total
£’000
2,637
1,312
26
3,975
(3,802)
(46)
127
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during
the year.
Diluted loss per share is calculated by dividing the loss 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 adjusted items. The Directors believe that the adjusted earnings per
share measure provides a useful comparison of performance and allow management and other stakeholders to better compare the performance of the Group
between the current and prior year, excluding the effects of certain non-cash charges, non-operational items and significant infrequent items that would distort
period on period comparability. The adjustments are detailed in note 5.
Loss attributable to ordinary shareholders
Adjustments to loss after tax (note 5)
Adjusted (loss)/profit attributable to ordinary shareholders
Weighted average number of ordinary shares
Dilutive share options
Adjusted weighted average number of ordinary shares
Adjusted basic loss per share
Basic loss per share
Adjusted diluted loss per share
Diluted loss per share
2021
£’000
(31,002)
11,721
(19,281)
2020
£’000
(3,271)
5,595
2,324
2021
Number
2020
Number
801,653,662
4,097,303
797,228,579
11,395,298
805,750,965
808,623,877
(2.41p)
(3.87p)
(2.41p)
(3.87p)
0.29p
(0.41p)
0.29p
(0.41p)
119
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
13. Intangible assets
Group
Cost
At 1 January 2021
Additions
Foreign exchange
At 31 December 2021
Accumulated amortisation and impairment
At 1 January 2021
Charge for the year
Impairment
Foreign exchange
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Group
Cost
At 1 January 2020
Additions
Foreign exchange
At 31 December 2020
Accumulated amortisation and impairment
At 1 January 2020
Charge for the year
Impairment
Foreign exchange
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Goodwill
£’000
63,732
–
561
64,293
–
–
–
–
–
64,293
63,732
Goodwill
£’000
66,730
–
(2,998)
63,732
–
–
–
–
–
63,732
66,730
Patents
£’000
Development
costs
£’000
Software
£’000
Customer
contracts
£’000
8,613
311
2
8,926
4,972
213
2,796
2
7,983
943
3,641
79,467
2,994
745
83,206
43,664
6,490
4,615
493
55,262
27,944
35,803
8,894
1,423
15
10,332
6,298
1,344
–
4
7,646
2,686
2,596
7,327
–
100
7,427
7,327
–
–
100
7,427
–
–
Patents
£’000
Development
costs
£’000
Software
£’000
Customer
contracts
£’000
7,945
677
(9)
8,613
1,377
133
3,471
(9)
4,972
3,641
6,568
76,945
4,678
(2,156)
79,467
35,638
6,430
3,066
(1,470)
43,664
35,803
41,307
8,849
54
(9)
8,894
4,998
1,306
–
(6)
6,298
2,596
3,851
7,728
–
(401)
7,327
7,728
–
–
(401)
7,327
–
–
Total
£’000
168,033
4,728
1,423
174,184
62,261
8,047
7,411
599
78,318
95,866
105,772
Total
£’000
168,197
5,409
(5,573)
168,033
49,741
7,869
6,537
(1,886)
62,261
105,772
118,456
Customer contract intangible assets relate to customer contracts acquired as part of a business combination.
The amortisation charge of £8,047,000 (2020: £7,869,000) and the impairment charge of £7,411,000 (2020: £6,537,000) have been charged to selling, general and
administrative expenses in the Consolidated Income Statement.
Wireless operating segment development and patent cost impairment charges of £4,692,000 relate to the impairment of the Group’s filter related cREO™ patent and
development costs. Photonics operating segment development and patent cost impairment charges of £2,716,000 relate to the impairment of the Group’s photonic
quasi crystal patent and development costs. The impairments have arisen following the decision to pause development related activities given the current lack of
visibility over the timeline to commercialisation of each of the technologies. The net book value of the assets has been impaired to £nil with the charge recognised in
‘selling, general and administrative expenses’ in the Consolidated Income Statement.
Wireless operating segment development and patent cost impairment charges of £6,537,000 in 2020 related to the impairment of the Group’s non-filter related
cREO™ patent and development costs. The net book value of the non-filter related cREO™ development costs and patent assets were impaired to £nil with the
charge recognised in ‘selling, general and administrative expenses’ in the Consolidated Income Statement in 2020.
120
IQE plc
Annual Report and Financial Statements 2021
Impairment tests for goodwill
Goodwill is tested for impairment annually and whenever there is an indication of impairment at the level of the CGU to which it is allocated. Multiple production
facilities and production assets are included in a single CGU reflecting that production can (and is) transferred between sites and production assets for different
operating segments to suit capacity planning and operational efficiency. Given the interdependency of facilities and production assets, goodwill is tested for
impairment by grouping operational sites and production assets into CGUs based on type of production.
Allocation of goodwill by CGU
Wireless
Photonics
Total Goodwill
2021
£’000
57,169
7,124
64,293
2020
£’000
56,704
7,028
63,732
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
based upon a long-term growth rate of 2% (2020: 2%).
Value in use calculations are based on the Group’s Board approved 2022 budget and five-year plan where revenue assumptions for years 4 and 5 have typically been
extrapolated from year 3 using business segment growth rates that take account of industry trends, external market views and external market research.
The key assumptions applied in the 2021 cash flow forecast are summarised below:
2021
Risk adjusted discount rate
Photonics growth rate
Wireless growth rate
2020
Risk adjusted discount rate
Photonics growth rate
Wireless growth rate
Year 1
%
16.5%
2022 Budget
2022 Budget
Year 1
%
15.0%
2021 Budget
2021 Budget
Year 2
%
16.5%
5 Year Plan
5 Year Plan
Year 2
%
15.0%
3 Year Plan
3 Year Plan
Year 3
%
16.5%
5 Year Plan
5 Year Plan
Year 3
%
15.0%
3 Year Plan
3 Year Plan
Year 4
%
16.5%
5.5%
9.4%
Year 4
%
15.0%
14.4%
12.4%
Year 5
%
16.5%
5.5%
9.4%
Year 5
%
15.0%
14.4%
12.4%
The assumptions and growth rates contained in the Group’s value in use calculations have been updated in 2022 to reflect the latest Board approved five year
plan which comprises revenue, material costs and site manufacturing labour and overhead cost forecasts that have been assessed and updated by reference to a
combination of customer and supplier specific information and market growth assumptions. The risk adjusted discount rate has been increased to reflect greater risk
associated with the Group’s growth forecasts given current financial performance of the business.
Photonics CGU
The recoverable amount of the Photonics CGU determined based on value in use calculations exceeds the carrying amount of the associated goodwill, other
intangible assets and property, plant and equipment allocated to the CGU by greater than ~£50,000,000.
The Group has carried out a sensitivity analysis on the impairment test for the Photonics CGU, using various reasonably plausible scenarios focused on changes in
business segment growth rates and the discount rate applied in the value in use calculations.
Growth rates in the value in use calculations take account of continuing market demand for compound semiconductors, driven by macro trends of 5G and connected
devices and the increasing proliferation of 3D and advanced sensing end user applications that require enabling compound semiconductor material. An impairment
would arise on the carrying amount of the goodwill allocated to the Photonics CGU if the aggregated compound annual growth rate used in the value in use
calculations to determine the recoverable amount was ~17.0% or less in the first five-year period.
An impairment would arise on the carrying amount of the goodwill, if the discount rate in the value in use calculations used to determine the recoverable amount of
the Photonics CGU was increased to ~21.0%.
Wireless CGU
The recoverable amount of the Wireless CGU determined based on value in use calculations exceeds the carrying amount of the associated goodwill, other intangible
assets and property, plant and equipment allocated to the CGU by greater than ~£65,000,000.
The Group has carried out a sensitivity analysis on the impairment test for the Wireless CGU, using various reasonably plausible scenarios focused on changes in
business segment growth rates and changes in the discount rate applied in the value in use calculations.
Growth rates in the value in use calculations take account of continuing market demand for compound semiconductors, driven by macro trends of 5G and connected
devices where 5G network infrastructure and 5G mobile handsets are being enabled by next generation wireless compound semiconductor material. An impairment
would arise on the carrying amount of the goodwill allocated to the Wireless CGU if the aggregated compound annual growth rate used in the value in use
calculations to determine the recoverable amount was 15.0% or less in the first five-year period.
An impairment would arise on the carrying amount of the goodwill allocated to the Wireless CGU if the discount rate in the value in use calculations used to
determine the recoverable amount of the Wireless CGU was increased to ~22.0%.
121
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
13. Intangible assets continued
Company
Cost
At 1 January 2021
Additions
At 31 December 2021
Accumulated amortisation
At 1 January 2021
Charge for the year
Impairment
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Company
Cost
At 1 January 2020
Additions
At 31 December 2020
Accumulated amortisation
At 1 January 2020
Charge for the year
Impairment
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Patents
£’000
Software
£’000
7,169
285
7,454
3,991
181
2,442
6,614
840
3,178
870
708
1,578
335
140
–
475
1,103
535
Patents
£’000
Software
£’000
6,329
840
7,169
417
103
3,471
3,991
3,178
5,912
865
5
870
238
97
–
335
535
627
Total
£’000
8,039
993
9,032
4,326
321
2,442
7,089
1,943
3,713
Total
£’000
7,194
845
8,039
655
200
3,471
4,326
3,713
6,539
Patent cost impairment charges of £2,442,000 relate to the impairment of filter related cREO™ patent costs and photonic quasi crystal patent costs. The impairments
have arisen following the decision to pause technology development activities related to the patents given the current lack of visibility over the timeline to
commercialisation of the technologies linked to the patents. The net book value of the patent assets has been impaired to £nil.
122
IQE plc
Annual Report and Financial Statements 2021
14. Property, plant and equipment
Group
Cost
At 1 January 2021
Additions
Disposals
Foreign exchange
At 31 December 2021
Accumulated depreciation
At 1 January 2021
Charge for the year
Impairment
Disposals
Foreign exchange
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Land and
buildings
£’000
Short leasehold
improvements
£’000
Fixtures
and fittings
£’000
Plant and
machinery
£’000
18,329
–
–
178
18,507
5,669
921
–
–
31
6,621
11,886
12,660
37,787
176
–
384
38,347
21,176
2,097
–
–
184
23,457
14,890
16,611
11,500
1,487
–
285
13,272
5,242
1,201
–
–
95
6,538
6,734
6,258
190,022
13,868
(2,817)
1,769
202,842
99,322
9,090
74
(2,809)
945
106,622
96,220
90,700
Property, plant and equipment includes assets in the course of construction with a net carrying value of £12,262,000 (2020: £nil).
Group
Cost
At 1 January 2020
Additions
Disposals
Foreign exchange
At 31 December 2020
Accumulated depreciation
At 1 January 2020
Charge for the year
Disposals
Foreign exchange
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Land and
buildings
£’000
Short leasehold
improvements
£’000
Fixtures
and fittings
£’000
Plant and
machinery
£’000
19,238
(883)
–
(26)
18,329
4,649
1,062
–
(42)
5,669
12,660
14,589
39,326
143
–
(1,682)
37,787
19,896
2,088
–
(808)
21,176
16,611
19,430
11,335
615
(547)
97
11,500
4,644
1,010
(371)
(41)
5,242
6,258
6,691
192,350
4,859
(2,761)
(4,426)
190,022
96,578
8,823
(2,755)
(3,324)
99,322
90,700
95,772
Total
£’000
257,638
15,531
(2,817)
2,616
272,968
131,409
13,309
74
(2,809)
1,255
143,238
129,730
126,229
Total
£’000
262,249
4,734
(3,308)
(6,037)
257,638
125,767
12,983
(3,126)
(4,215)
131,409
126,229
136,482
Negative land and building additions totalling £833,000 reflect an adjustment to the cost of construction for the Newport foundry following finalisation of costs with
the contractor at the end of the construction contract.
123
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
14. Property, plant and equipment continued
Company
Cost
At 1 January 2021
Additions
At 31 December 2021
Accumulated depreciation
At 1 January 2021
Charge for the year
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Company
Cost
At 1 January 2020
Additions
At 31 December 2020
Accumulated depreciation
At 1 January 2020
Charge for the year
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Fixtures
and fittings
£’000
135
106
241
120
14
134
107
15
Fixtures
and fittings
£’000
123
12
135
104
16
120
15
19
124
IQE plc
Annual Report and Financial Statements 2021
15. Right of use assets
Group
Cost
At 1 January 2021
Additions
Disposals
Foreign exchange
At 31 December 2021
Accumulated depreciation
At 1 January 2021
Charge for the year
Disposals
Foreign exchange
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Group
Cost
At 1 January 2020
Additions
Foreign exchange
At 31 December 2020
Accumulated depreciation
At 1 January 2020
Charge for the year
Foreign exchange
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Land and
buildings
£’000
Fixtures and
Fittings
£’000
Plant and
machinery
£’000
51,050
10,531
(558)
(174)
60,849
14,154
3,663
(519)
(328)
16,970
43,879
36,896
17
6
–
–
23
–
5
–
–
5
18
17
681
123
(88)
13
729
255
186
(88)
6
359
370
426
Land and
buildings
£’000
Fixtures and
Fittings
£’000
Plant and
machinery
£’000
49,955
1,569
(474)
51,050
10,848
3,549
(243)
14,154
36,896
39,107
–
18
(1)
17
–
–
–
–
17
–
381
336
(36)
681
133
132
(10)
255
426
248
Total
£’000
51,748
10,660
(646)
(161)
61,601
14,409
3,854
(607)
(322)
17,334
44,267
37,339
Total
£’000
50,336
1,923
(511)
51,748
10,981
3,681
(253)
14,409
37,339
39,355
125
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
16. Investments
Company
Cost
At 1 January 2021
Subsidiaries share based payments charge
At 31 December 2021
Provisions for impairment
At 1 January 2021
Impairment
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Company
Cost
At 1 January 2020
Acquisition of minority interest
Subsidiaries share based payments charge
Disposals
At 31 December 2020
Provisions for impairment
At 1 January 2020
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Investments in
subsidiaries
£’000
123,452
827
124,279
32,032
16,178
48,210
76,069
91,420
Investments in
subsidiaries
£’000
Other equity
investments
£’000
121,918
1,438
96
–
123,452
32,032
32,032
91,420
89,886
75
–
–
(75)
–
–
–
–
75
Total
£’000
123,452
827
124,279
32,032
16,178
48,210
76,069
91,420
Total
£’000
121,993
1,438
96
(75)
123,452
32,032
32,032
91,420
89,961
Details of the company’s subsidiaries are set out in note 29.
Investments are reviewed for impairment trigger events annually. This review includes a qualitative assessment of the business performance of each investment and
a quantitative assessment of any potential impact on the carrying value of each investment arising from the results of the Group’s value in use calculations prepared
as part of the Group’s goodwill impairment review.
The announced closure of the Group’s manufacturing facility in Singapore has been identified as an impairment trigger event (2020: none) with the planned
cessation of operations and closure of the manufacturing site in 2022 resulting in the impairment of the Company’s investment in its Singapore subsidiaries from a
carrying value of £5,353,000 to £nil.
The Group’s value in use calculations prepared as part of the Group’s goodwill impairment review has identified an impairment trigger event (2020: none) for the
Company’s investment in its sub-group, headed by Wafer Technology International Limited, where current and forecast future financial performance has declined.
The decline in forecast future profitability, assessed by reference to the Group’s value in use cash flow forecasts has resulted in a £10,825,000 impairment in the
Company’s investment in its Wafer Technology sub-group.
Indicators that impairment losses might have reversed are assessed annually. No events indicating a reversal of impairment losses have been identified as part of the
review in the current year (2020: none).
126
IQE plc
Annual Report and Financial Statements 2021
17. Inventories
Group
Raw materials and consumables
Work-in-progress and finished goods
2021
£’000
25,028
6,682
31,710
2020
£’000
23,666
7,221
30,887
The directors are of the opinion that the replacement values of inventories are not materially different to the carrying values stated above. The carrying values
are stated net of impairment provisions of £12,388,000 (2020: £11,551,000). £866,000 (2020: £3,025,000) of inventories were written down during 2021 and an
expense recognised in the income statement.
18. Trade and other receivables
Current
Trade receivables
Other receivables
Contract assets
Prepayments
Non-current
Amounts owed by group undertakings
Other financial assets
2021
Group
£’000
20,659
4,170
8,915
5,116
38,860
2021
Group
£’000
–
–
–
2021
Company
£’000
–
704
–
1,421
2,125
2021
Company
£’000
132,677
–
132,677
2020
Group
£’000
21,060
7,795
6,258
3,462
38,575
2020
Group
£’000
–
–
–
2020
Company
£’000
–
2,045
–
564
2,609
2020
Company
£’000
133,314
–
133,314
Contract assets relate to bespoke manufactured customer products where the Group has a guaranteed contractual right of payment. Contract assets are transferred
to receivables at the point that manufactured products are delivered to customers, except for supplier managed inventory arrangements where contract assets are
transferred to receivables from the earlier of a specified contractual date following delivery or when the product is drawn from inventory by the customer. All 2020
contract assets have been transferred to receivables during 2021.
Amounts owed by Group undertakings are unsecured and repayable on demand. Interest is charged at a rate of 5% per annum (2020: 5% per annum).
The Group classifies other financial assets at amortised cost. Other financial assets are classified at amortised cost as the asset is held within a business model whose
objective is to collect contractual cash flows and the contractual terms give rise to cash flows that are solely payments of principal and interest. Other financial assets
relate to £8,800,000 of impaired Preferred ‘A’ shares (2020: £8,800,000) issued by the Compound Semiconductor Centre Limited (‘CSC’), a joint venture between the
Group and Cardiff University (see note 30 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 estimated fair values of trade receivables, other receivables, contract assets, other financial assets and amounts owed by group undertakings are set out
in note 22.
127
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
19. Trade and other payables
Current
Trade payables
Amounts owed by group undertakings
Other taxation and social security
Other payables
Accruals and deferred income
2021
Group
£’000
20,878
–
71
1,346
14,788
37,083
2021
Company
£’000
2,628
24,972
277
–
2,510
30,387
2020
Group
£’000
22,098
–
617
1,033
11,857
35,605
2020
Company
£’000
1,728
20,490
1,088
27
2,298
25,631
Accruals and deferred income include no contract liabilities (2020: £nil).
Amounts owed to group undertakings are unsecured and repayable on demand. Interest is charged at a rate of 5% per annum (2020: 5% per annum).
Other payables include the recognised mark-to-market fair value of £10,000 associated with foreign currency forward exchange contracts held at 31 December 2021
(2020: £nil) that do not qualify for hedge accounting. The foreign currency forward exchange contracts are classified as Level 2 financial instruments. The fair value
of Level 2 financial instruments, such as over the counter foreign currency contracts have been determined using observable market data based on quoted market
prices or market quotes for similar instruments. If all significant inputs required to fair value the instrument are observable, the instrument is included in level 2.
20. Borrowings
Group
Non-current borrowings
Bank borrowings
Lease liabilities
Current borrowings
Bank borrowings
Lease liabilities
Total borrowings
Bank Borrowings
Bank borrowings fall due for repayment as follows
Within one year
Between one and five years
2021
£’000
10,365
49,693
60,058
6,230
4,694
10,924
70,982
2021
£’000
6,230
10,365
16,595
2020
£’000
16,539
42,226
58,765
6,201
4,798
10,999
69,764
2020
£’000
6,201
16,539
22,740
On 30 December 2021, the Company refinanced its £25,900,000 ($35,000,000) multi-currency revolving credit facility, provided by HSBC Bank plc. The facility is
secured on the assets of IQE plc and its subsidiary companies with a committed term to 30 April 2023 and an option to extend the facility for a further 12 months.
Interest on the facility is payable at a margin of between 2.00 and 2.80 per cent per annum over SONIA on any drawn balances. The facility is undrawn at
31 December 2021 (2020: Undrawn).
On 29 August 2019 a subsidiary of the Group agreed a new £30,000,000 asset finance facility, provided by HSBC Bank plc that is secured over various plant and
machinery assets. The facility has a five-year term and an interest rate margin of 1.65% per annum over base rate on any drawn balances.
The Group has complied with all the financial covenants of its borrowing facilities during 2021 and 2020.
Lease liabilities
Lease liabilities fall due for repayment as follows
Within one year
Between one and five years
After five years
2021
£’000
4,694
14,666
35,027
54,387
2020
£’000
4,798
10,966
31,260
47,024
Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. Lease
liabilities principally relate to property.
128
IQE plc
Annual Report and Financial Statements 2021
21. Provisions for other liabilities and charges
Group
As at 1 January
Charged to the income statement
Utilised during the year
Foreign exchange
As at 31 December
Group
Current
Non-current
Total
Restructuring
£’000
162
3,617
(342)
(3)
3,434
Restructuring
£’000
2,946
488
3,434
Onerous
Contract
£’000
1,840
–
(138)
–
1,702
Onerous
Contract
£’000
740
962
1,702
2021
Total
£’000
2,002
3,617
(480)
(3)
5,136
2021
Total
£’000
3,686
1,450
5,136
Restructuring
£’000
–
162
–
–
162
Restructuring
£’000
–
162
162
Onerous
Contract
£’000
–
1,840
–
–
1,840
Onerous
Contract
£’000
515
1,325
1,840
2020
Total
£’000
–
2,002
–
–
2,002
2020
Total
£’000
515
1,487
2,002
The restructuring provision relates to costs relating to the announced closure of the Group’s manufacturing facility in Pennsylvania, USA and the Group’s
manufacturing facility in Singapore.
• The restructuring provision of £488,000 (2020: £162,000) associated with the announced closure of the Group’s manufacturing facility in the USA relates to
employee related costs that are expected to be utilised over a period up to 30 June 2024.
• The restructuring provision of £2,946,000 (2020: £nil) associated with the announced closure of the Group’s manufacturing facility in Singapore relates to
employee related costs of £1,540,000 and site decommissioning costs of £1,406,000 that are expected to be utilised over a period up to 30 June 2023.
The onerous contract provision represents the cost of minimum guaranteed future royalty payments associated with the cREO™ technology acquired from
Translucent Inc. The onerous contract provision is expected to be utilised over a period up to 31 December 2024.
Company
As at 1 January
Charged to the income statement
Utilised during the year
Foreign exchange
As at 31 December
Company
Current
Non-current
As at 31 December
2021
£’000
1,840
–
(138)
–
1,702
2021
£’000
740
962
1,702
2020
£’000
–
1,840
–
–
1,840
2020
£’000
515
1,325
1,840
The onerous contract provision represents the cost of minimum guaranteed future royalty payments associated with the cREO™ technology acquired from
Translucent Inc. The onerous contract provision is expected to be utilised over a period up to 31 December 2024.
129
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
22. Financial Instruments
Financial instruments by category
Trade and other receivables (excluding prepayments) and cash and cash equivalents are classified as financial assets at amortised cost. Borrowings and trade and
other payables are classified as financial liabilities at amortised cost. Both categories are initially measured at fair value and subsequently held at amortised cost.
Financial instruments are classified as level 2 per the fair value hierarchy with the exception of preference share instruments which are classified as level 3.
Derivatives (forward exchange contracts) are classified as derivatives used for hedging and accounted for at fair value through profit and loss in 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.
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.
Customer credit risk is managed at the Group and site level with credit risk assessments completed for all customers. If no independent credit rating is available the
credit quality of the customer is assessed by reference to the customers’ financial position, past experience and other relevant factors. Individual credit limits are set
based on internal or external ratings in accordance with the Group’s credit risk policies. 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. The Group has historically experienced low levels of payment default.
Counterparty risk associated with monies on deposit with financial institutions is managed at the Group level in accordance with the Group’s treasury policies. The
credit quality of banks has been assessed by reference to external credit ratings, based on reputable credit agencies long-term issuer ratings.
Trade receivables and contract assets
The credit quality of trade receivables and contract assets that are not impaired have been assessed based on historical information about the counterparty default
rate. The Group does not hold any receivable balances with customers with a history of past default.
Cash at bank
The credit quality of cash has been assessed by reference to external credit ratings based on reputable credit agencies long-term issuer ratings. The Group has cash
at bank balances totalling £9,069,000 with banks with A1 credit ratings and cash at bank balances totalling £1,722,000 with A2 credit ratings.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset 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.
Assets as per balance sheet
Carrying amount
Cash and cash equivalents
Trade receivables
Amounts owed by group undertakings
Other receivables excluding prepayments
Financial Assets (Preference share receivables)
2021
Group
£’000
10,791
20,659
–
13,085
–
44,535
2021
Company
£’000
262
–
132,677
704
–
133,643
2020
Group
£’000
24,663
21,060
–
14,053
–
59,776
2020
Company
£’000
635
–
133,314
2,045
–
135,994
Included in other receivables are contract assets of £8,915,000 (2020: £6,258,000).
The Group is exposed to credit concentration risk with its three largest customers which represent 47% (2020: 51%) of outstanding trade receivables and contract
asset balances. Customer credit risk is managed according to strict credit control policies. The majority of the Group’s revenues are derived from large multinational
organisations that are established customers of the Group with no prior history of default such that credit risk is considered to be low. The Group monitors customer
credit ratings and has had no material defaults in the past.
130
IQE plc
Annual Report and Financial Statements 2021
Group
Not past due
Past due 0-30
Past due more than 30
Allowance for bad and doubtful debt
At 1 January
Charged to the income statement
Utilised during the year
Foreign exchange
Gross
2021
£’000
16,029
3,439
1,606
21,074
Provision
2021
£’000
–
–
(415)
(415)
Net
2021
£’000
16,029
3,439
1,191
20,659
Gross
2020
£’000
16,864
4,117
531
21,512
Provision
2020
£’000
–
–
(452)
(452)
2021
£’000
452
(34)
(5)
2
415
Net
2020
£’000
16,864
4,117
79
21,060
2020
£’000
223
230
–
(1)
452
As at 31 December 2021, 76% (2020: 78%) of trade receivables were within terms. Of the other trade receivables, 68% (2020: 89%) were less than 30 days past due.
An allowance has been made for estimated irrecoverable amounts from the sale of goods of £415,000 (2020: £452,000). This allowance has been determined on
an expected credit loss basis 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 contract assets are primarily denominated in
US dollars, as are trade payables limiting the exposure of the Group to movements in foreign exchange rates. Based on the balances held at 31 December 2021 a
1 cent movement in the US dollar to Sterling rate would impact the net value of these instruments by £72,000 (2020: £48,000).
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. The Group ensures that it has sufficient borrowing
facilities to meet foreseeable operational expenses. At the year- end the Group had available undrawn facilities of £30,900,000 (2020: £30,735,000).
The following table illustrates the contractual maturities of financial liabilities, including interest payments, where applicable and excluding the impact of netting
agreements on an undiscounted basis.
Contractual cash flow maturities –
Other financial liabilities at amortised cost
31 December 2021
Trade and other payables
Accruals
Bank borrowings
Lease liabilities
Contractual cash flow maturities –
Other financial liabilities at amortised cost
31 December 2020
Trade and other payables
Accruals
Bank borrowings
Lease liabilities
Group
Contractual
Cash flows
£’000
Group
Less than
12 months
£’000
Group
Carrying
amount
£’000
22,224
14,788
16,595
54,387
Group
Carrying
amount
£’000
23,131
11,857
22,740
47,024
107,994
114,689
Group
Contractual
Cash flows
£’000
Group
Less than
12 months
£’000
22,224
14,788
16,670
61,007
23,131
11,857
23,923
53,194
22,224
14,788
6,250
5,955
49,217
23,131
11,857
6,715
5,931
47,634
104,752
112,105
Group
1 –2
Years
£’000
–
–
6,250
5,823
12,073
Group
1 –2
Years
£’000
–
–
6,568
4,649
11,217
Group
2–5
Years
£’000
–
–
4,170
17,670
21,840
Group
2–5
Years
£’000
–
–
10,640
13,721
24,361
Group
5+
Years
£’000
–
–
–
31,559
31,559
Group
5+
Years
£’000
–
–
–
28,893
28,893
131
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
22. Financial Instruments continued
Contractual cash flow maturities –
Other financial liabilities at amortised cost
31 December 2021
Trade and other payables
Amounts owed to group undertakings
Accruals
Contractual cash flow maturities –
Other financial liabilities at amortised cost
31 December 2020
Trade and other payables
Amounts owed to group undertakings
Accruals
Financial risk management
Company
Carrying
amount
£’000
2,628
24,972
2,510
30,110
Company
Carrying
amount
£’000
1,755
20,490
2,298
24,543
Company
Contractual
Cash flows
£’000
Company
Less than
12 months
£’000
Company
1 –2
Years
£’000
Company
2–5
Years
£’000
Company
5+
Years
£’000
2,628
24,972
2,510
30,110
2,628
24,972
2,510
30,110
–
–
–
–
–
–
–
–
–
–
–
–
Company
Contractual
Cash flows
£’000
Company
Less than
12 months
£’000
Company
1 –2
Years
£’000
Company
2–5
Years
£’000
Company
5+
Years
£’000
1,755
20,490
2,298
24,543
1,755
20,490
2,298
24,543
–
–
–
–
–
–
–
–
–
–
–
–
Market risk – Foreign Exchange Risk
The Group operates internationally with operations in the United Kingdom, United States of America, Taiwan and Singapore and is exposed to foreign exchange
risk arising from various currency exposures, primarily relating to fluctuations in exchange rates between UK sterling, US dollars, Taiwanese dollars and Singapore
dollars. The Group’s presentational currency is sterling and foreign exchange risk arises from a combination of future commercial transactions, recognised assets and
liabilities denominated in a currency that is not the functional currency of the relevant group entity and net investments in the Group’s foreign operations.
The majority of the Group’s sales are denominated in US dollars and therefore the Group’s cash flows are affected by fluctuations in the rate of exchange between
US dollar and UK Sterling, Taiwanese dollar and Singapore dollar exchange rates given that the Group is required to fund certain costs at its operations in the United
Kingdom, Taiwan and Singapore in local currencies. Foreign exchange risk of this nature is managed using a combination of the natural currency hedge within the
Group’s operating model given that a significant proportion of the Group’s costs, including the purchase of certain key raw materials are denominated in US dollars,
and, via the use of derivative foreign currency forward exchange contracts.
Derivative foreign currency forward exchange contracts are only used for economic hedging purposes and not as speculative investments. Derivative foreign currency
forward exchange contracts that do not meet the hedge accounting criteria are classified as ‘held for trading’ for accounting purposes and are accounted for at fair
value through profit or loss. These derivative instruments are presented as current assets or liabilities to the extent they are expected to be settled within 12 months
after the end of the reporting period. As at 31 December 2021 (2020: £nil) the fair value of foreign currency forward exchange contracts held for trading and
recognised in ‘Other payables’ within current liabilities was £10,000. The group’s accounting policy for its cash flow hedges is set out in note 2.18.
The Group has certain investments in foreign operations in North America, Taiwan and Singapore, whose net assets are exposed to foreign currency translation risk.
Translation exposures that arise on converting the results of overseas subsidiaries are not hedged. 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 £239,000 (2020: £333,000).
Cash flow and fair value 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. Historically the Group has not
undertaken any hedging activity in this area although the board keeps this under regular review.
The Group’s interest rate risk arises from its cash and cash equivalents, its preference share financial assets and from its bank borrowings. Cash and cash equivalents,
including foreign currency cash deposits earn interest at prevailing variable market rates of interest whilst the preference share debt earns interest at HSBC Bank Plc
base rate.
The Group’s bank borrowings consist of a variable rate asset finance loan secured against the assets to which it relates and a variable rate multi-currency revolving
credit facility secured against the assets of the Group.
The variable rate UK sterling £30,000,000 asset finance facility, which has a principal outstanding of £16,670,000 (2020: £22,920,000) has a five-year term and an
interest rate margin of 1.65% per annum over base rate on any drawn balances. The loan is repayable by monthly instalment commencing on the first anniversary of
the facility.
The variable rate US dollar $35,000,000 (£25,900,000) multi-currency revolving credit facility, which is undrawn has a committed term to 30 April 2023 and an option
to extend the facility for a further 12 months. Interest on the facility is payable at a margin of between 2.00 and 2.80 per cent per annum over SONIA.
The Group’s policy is to regularly review its exposure to interest rate risk, and in particular the mix between fixed and floating rate financial assets and financial
liabilities. The percentage of financial assets and financial liabilities bearing variable rate interest was 100% (2020: 100%).
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 on the interest-bearing financial
assets held at 31 December 2021 would impact annual interest income by approximately £nil (2020: £nil). A 50-basis point (0.5%) movement in interest rates on the
interest-bearing liabilities held at 31 December 2021 would impact annual interest costs by approximately £83,000 (2020: £114,000).
132
IQE plc
Annual Report and Financial Statements 2021
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 adjusts 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. Total capital at 31 December 2021 was £298,830,000
(2020: £305,536,000). The Group monitors capital on the basis of a gearing ratio. The gearing ratio is calculated as net debt divided by total capital and at
31 December 2021 was 20.1% (2020: 14.8%).
All covenants in relation to the Group’s borrowing facilities have been complied with during the year.
Fair values
Fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Group
Cash and cash equivalents
Trade receivables
Other receivables
Contract assets
Financial Assets (Preference share receivables)
Trade and other payables
Bank borrowings
Company
Cash and cash equivalents
Amounts owed by group undertakings
Other receivables
Trade and other payables
Basis for determining fair value
2021
Carrying
amount
£’000
10,791
20,659
4,170
8,915
–
(22,224)
(16,595)
5,716
2021
Carrying
amount
£’000
262
132,677
704
(27,600)
106,043
2021
Fair
value
£’000
10,791
20,659
4,170
8,915
163
(22,224)
(16,595)
5,879
2021
Fair
value
£’000
262
132,677
704
(27,600)
106,043
2020
Carrying
amount
£’000
24,663
21,060
7,795
6,258
–
(23,131)
(22,740)
13,905
2020
Carrying
amount
£’000
635
133,314
2,045
(22,245)
113,749
2020
Fair
value
£’000
24,663
21,060
7,795
6,258
163
(23,131)
(22,740)
14,068
2020
Fair
value
£’000
635
133,314
2,045
(22,245)
113,749
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments reflected in the table above.
Cash and cash equivalents
Cash and cash equivalents earn interest at prevailing variable market rates of interest such that the carrying value of cash and cash equivalents is deemed to reflect
fair value.
Trade receivables, other receivables and contract assets
Trade receivables, other receivables and contract assets are short-term assets with a remaining life of less than one year such that the amortised cost carrying value
of the assets is deemed to reflect fair value.
Financial Assets (Preference share receivables)
The fair value of preference share receivables was calculated by reference to assumptions about forecast future financial performance of CSC and the associated
level of expected credit losses.
Amounts owed by group undertakings
Amounts owed by group undertakings are long-term assets with a remaining life of greater than one year with outstanding balances accruing interest at a rate of
5% per annum such that the amortised cost carrying value of the assets is deemed to reflect fair value.
Trade and other payables
Trade and other payables are short-term liabilities with a remaining life of less than one year such that the amortised cost carrying value of the liabilities is deemed to
reflect fair value.
Bank borrowings
The carrying value of bank borrowings is deemed to reflect fair value as interest payable on bank borrowings is charged at a variable rate assessed as close to current
market rates.
133
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
23. Share capital
Group and Company
Allotted, called up and fully paid
Ordinary shares of 1p each
2021
Number
of shares
2021
£’000
2020
Number
of shares
803,555,756
8,036
800,364,569
2020
£’000
8,004
The movement in the number of ordinary shares during the year was:
At 1 January
Employee share schemes
IQE Taiwan minority interest acquisition – equity consideration
At 31 December
3,191,187 ordinary shares (2020: 4,222,267 ordinary shares) were issued during the year as follows:
2021
Number
800,364,569
3,191,187
–
2020
Number
796,142,302
1,615,578
2,606,689
803,555,756
800,364,569
Employee share schemes
IQE Taiwan minority interest acquisition
2021
Number
of shares
3,191,187
–
3,191,187
2021
Consideration
1.0p to 23.0p
2020
Number
of shares
1,615,578
2,606,689
4,222,267
2020
Consideration
Nil to 45.0p
55.15p
The share premium arising from consideration received from employee share scheme exercises of £472,000 (2020: £240,000) was £447,000 (2020: £388,000).
The share premium arising from the non-cash equity consideration paid to minority interest shareholders in IQE Taiwan Corporation for the purchase of their
minority equity shareholdings was £nil (2020: £1,412,000).
134
IQE plc
Annual Report and Financial Statements 2021
24. Share based payments
The total amount charged to the income statement in 2021 in respect of share-based payments was £1,691,000 (2020: £265,000).
Long-term incentive plan
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 long-term incentive awards over shares in the company to directors and employees of the Group.
Long-term incentive share awards are granted with contractual lives of between three and ten years with a fixed exercise price of 1 penny equal to the nominal value
of the ordinary share.
Directors
Long-term incentive awards become exercisable between three and ten years from the date of grant subject to continued employment and achievement of
performance conditions relating to growth in earnings per share and total shareholder return targets over a three-year vesting period that cannot be extended. The
Group has no legal or constructive obligation to repurchase or settle the options in cash.
Details of the Directors long-term incentive plan are set out in the Remuneration Report.
Employees
Long-term incentive awards become exercisable between three and five years from the date of grant subject to continued employment and the achievement of
performance conditions relating to a combination of growth in earnings per share targets over a three-year vesting period that cannot be extended and growth in
earnings per share and total shareholder return targets over a three-year vesting period that cannot be extended. The Group has no legal or constructive obligation
to repurchase or settle the options in cash.
Long term incentive awards are valued using either the Black-Scholes option-pricing model or the Monte Carlo simulation model with the total fair value of the
award that is to be expensed charged to the income statement over the vesting period of the long-term incentive award.
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 ten 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.
Share options are valued using the Black-Scholes option-pricing model with the total fair value of the award that is to be expensed charged to the income statement
over the vesting period of the share option.
The principal assumptions used in the calculation of the fair value of long-term incentive awards and share option awards 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
2021
49.94
5.99
3
10
3
70%
0.6%
0%
2020
45.19
17.54
3
10
3
60%
0.7%
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 long-term incentive awards and share options granted during the year ended 31 December 2021 was £4,497,360 (2020: £2,296,000).
The weighted average fair value of long-term incentive awards granted during the year ended 31 December 2021 was 71.1p (2020: 20.1p).
135
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
24. Share based payments continued
The movements on long-term incentive awards and share options during the year were as follows:
At 1 January
Granted
Exercised
Cancelled/lapsed
At 31 December
2021
Number
of options
22,081,637
6,437,146
(2,506,993)
(1,603,675)
24,408,115
2021
Average
exercise price
(pence)
10.08p
1.00p
17.64p
24.43p
2020
Number
of options
20,639,474
8,337,449
(1,274,323)
(5,620,963)
5.99p
22,081,637
2020
Average
exercise price
(pence)
17.41p
1.80p
1.93p
23.36p
10.08p
The weighted average share price at the date share options were exercised was 57.2p (2020: 53.05p).
As at 31 December 2021, the total number of long-term incentive awards and share options held by employees was 24,408,115 (2020: 22,081,637) as follows:
Option price pence/share
9.15p – 50.25p
1.00p – 28.17p
1.00p – 27.75p
1.00p – 23.83p
18.42p – 25.17p
1.00p – 37.92p
1.00p – 169.50p
1.00p – 143.30p
1.00p – 125.00p
1.00p
1.00p
At 31 December
Option period ending
31 December 2021
31 December 2022
31 December 2023
31 December 2024
31 December 2025
31 December 2026
31 December 2027
31 December 2028
31 December 2029
31 December 2030
31 December 2031
2021
Number of
options
2020
Number of
options
–
430,423
4,150,061
3,321,245
211,250
252,000
407,500
240,000
3,408,779
5,895,388
6,091,469
1,271,715
782,418
3,646,379
4,274,648
232,500
1,108,500
495,000
290,000
4,595,211
5,385,266
–
24,408,115
22,081,637
25. 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 £29,272,000 (2020: £7,586,000 loss).
136
IQE plc
Annual Report and Financial Statements 2021
26. Cash generated from operations
Group
Loss before tax
Finance costs
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Impairment of intangible assets
Impairment of PP&E
Impairment of financial assets
Share of joint venture
Inventory write downs (note 17)
Loss/(profit) on disposal of fixed assets
Non-cash provision movements
Share based payments
Cash inflow from operations before changes in working capital
(Increase)/decrease in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Cash inflow from operations
Company
Loss before tax
Finance income
Finance costs
Foreign exchange
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of intangible assets
Impairment of investments
Loss on disposal of equity investment
Non-cash provision movements
Share based payments
Cash outflow from operations before changes in working capital
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash outflow from operations
2021
£’000
(22,191)
2,213
13,309
3,854
8,047
7,411
74
–
–
866
(77)
3,617
1,691
18,814
(1,368)
2,930
(1,493)
18,883
2021
£’000
(25,470)
(5,493)
445
307
14
321
2,442
16,178
–
–
915
(10,341)
3,926
4,078
(2,337)
2020
£’000
(3,894)
2,165
12,983
3,681
7,869
6,537
–
3,788
(3,788)
3,025
182
2,002
265
34,815
(4,128)
(7,151)
11,921
35,457
2020
£’000
(8,898)
(5,716)
340
(214)
16
200
3,471
–
75
1,840
60
(8,826)
(51)
6,541
(2,336)
137
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
27. Reconciliation of net cash flow to movement in net funds/(debt)
(Decrease)/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
Net debt at 31 December
2021
£’000
(14,080)
–
6,145
3,705
(4,230)
(45,101)
(4,230)
(10,860)
(60,191)
Restated
2020
£’000
16,003
(5,000)
7,030
2,548
20,581
(63,948)
20,581
(1,734)
(45,101)
Non-cash movements include £11,397,000 (2020: £1,923,000) of new lease liabilities and the impact of foreign exchange of £537,000 (2020: £189,000).
The comparative financial information for 2020 has been restated as described in the footnote to the consolidated cash flow statement.
28. Analysis of net debt
Bank borrowings due after one year
Bank borrowings due within one year
Lease liabilities due after one year
Lease liabilities due within one year
Total borrowings
Cash and cash equivalents
Net debt
At 1
January
2021
£’000
(16,539)
(6,201)
(42,226)
(4,798)
(69,764)
24,663
(45,101)
Cash
flow
£’000
–
6,145
–
3,705
9,850
(14,080)
(4,230)
Other
non-cash
movements
£’000
At 31
December
2021
£’000
6,174
(6,174)
(7,467)
(3,601)
(11,068)
208
(10,860)
(10,365)
(6,230)
(49,693)
(4,694)
(70,982)
10,791
(60,191)
Cash and cash equivalents at 31 December 2020 and 31 December 2021 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 £11,397,000 (2020: £1,923,000) of new lease liabilities and the impact of foreign exchange of £537,000 (2020: £189,000).
138
IQE plc
Annual Report and Financial Statements 2021
29. Subsidiary undertakings
Class of capital
Proportion
of shares
held
Activity
Country of
incorporation Registered Office
Name of company
IQE (Europe) Limited
IQE Inc
IQE KC LLC
Ordinary shares of £1
100%*
Common stock of $0.001
100%*
Limited liability company
100%*
IQE Taiwan ROC
Ordinary shares of NT$10
100%
IQE RF LLC
Limited liability company
100%*
IQE Silicon Compounds Limited
Ordinary shares of £1
100%
MBE Technology Pte Ltd
CSDC Private Limited
Preferred shares of S$1
Ordinary shares of S$1
Common stock of $1 par
value
100%
100%
100%*
Wafer Technology Limited
Ordinary shares of £1
100%*
NanoGaN Limited
Ordinary shares of £0.001
100%
Galaxy Compound
Semiconductors Inc
Common stock of $0.00 par
value
100%*
EPI Holdings Limited
Ordinary shares of £1
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
Manufacture of silicon
epitaxy
Manufacture of advanced
semiconductor materials
Research, development
and Manufacture of
semiconductor materials
Manufacture of
semiconductor compounds
and ultra-high purity
materials
Development of advanced
semiconductor materials
Manufacture of
semiconductor compounds
and ultra-high purity
materials
Dormant holding company
UK
USA
USA
Taiwan
USA
UK
Singapore
Singapore
UK
UK
USA
UK
KTC Wireless LLC
Limited liability company
100%
Dormant holding company
USA
IQE USA Inc
IQE Solar LLC
Limited liability company
100%
Dormant holding company
USA
Limited liability company
100%*
Dormant company
USA
IQE Properties Inc
Limited liability company
100%*
Property holding company
USA
Wafer Technology
International Limited
* Indirect holdings
Ordinary shares of £1
100%
Dormant holding company
UK
Pascal Close, St Mellons, Cardiff
CF3 0LW, UK
119 Technology Drive,
Bethlehem, PA 18015, USA
200 John Hancock Road, Taunton,
MA 02780, USA
No. 2-1, Li-Hsin Road
Hsinchu Science Park
Hsinchu 300, Taiwan
265 Davidson Avenue Somerset,
NJ 08873, USA
Pascal Close, St Mellons, Cardiff
CF3 0LW, UK
30 Tampines industrial Avenue 3
Singapore 528775
30 Tampines industrial Avenue 3
Singapore 528775
Pascal Close, St Mellons, Cardiff
CF3 0LW, UK
Pascal Close, St Mellons, Cardiff
CF3 0LW, UK
9922 E Montgomery Avenue,
#7, Spokane, WA 99206, USA
Pascal Close, St Mellons, Cardiff
CF3 0LW, UK
119 Technology Drive,
Bethlehem, PA 18015, USA
119 Technology Drive,
Bethlehem, PA 18015, USA
119 Technology Drive,
Bethlehem, PA 18015, USA
119 Technology Drive,
Bethlehem, PA 18015, USA
Pascal Close, St Mellons, Cardiff
CF3 0LW, 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 a statutory guarantee to these subsidiaries in accordance with section 479C of the Companies Act 2006.
139
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
30. Joint Venture
The Group holds investments in one joint venture as follows:
Name of company
Class of capital
Proportion of
shares held
Activity
Compound
Semiconductor Centre
Limited
* Indirect holdings
Common stock of
£1 par value
50%*
Research, development and
Manufacture of semiconductor
materials
Country of
incorporation
UK
Registered Office
Pascal Close, St Mellons,
Cardiff CF3 0LW, UK
Compound Semiconductor Centre Limited (‘CSC’)
On 9 July 2015 the Group entered into a joint venture agreement with Cardiff University to create the CSC in the United Kingdom. The shareholder agreement
establishes that the CSC is jointly controlled by the shareholders who have an equal share of the voting rights such that the Group’s investment in the joint venture is
accounted for using the equity method in accordance with the accounting policies set out in note 2 and note 3.
The commercial purpose of the CSC is the research, development and manufacture by metal organic vapour phase epitaxy (‘MOVPE’) of advanced compound
semiconductor materials in Europe.
The business was set-up by the joint venture partners to provide a bridge between early stage research and high-volume manufacturing and was established in a
manner to provide the CSC with the capability to deliver specialist compound semiconductor product development, prototyping and early stage manufacturing
services to academic and industrial customers from its own compound semiconductor foundry.
On the formation of the joint venture the Group contributed fixed assets, independently valued at £12,000,000, transferred employees and licensed intellectual
property to establish the CSC’s manufacturing and technical capability whilst at the same time entering into an agreement with CSC that has been extended in the
current year and conveys to the Group the right to use the assets of the joint venture for a minimum period up to 31 March 2022 (see note 3a). Cardiff University
contributed cash.
The intellectual property license relates to technical know-how and is licensed to the CSC under the terms of a perpetual licence that can only be terminated in a
limited number of circumstances, none of which currently apply as the CSC is not in breach of the license agreement. The Group has no obligation to enhance or
develop the licensed intellectual property. The licence fee of £20,000,000, mutually agreed by the Group and Cardiff University was recognised as license income
in accordance with the Group’s revenue recognition policy for perpetual licenses (see note 2) in 2015 and 2016 when the intellectual property was transferred to
the CSC.
The contractual right granted by the CSC to the Group to use its assets provides the Group with access to manufacturing capacity and de-risks the initial
establishment of the CSC as the Group operates as a cornerstone customer during the early stages of the development of the CSC’s business when it is required to
fund running costs associated with its foundry whilst developing its business and own independent revenue streams.
Costs associated with the right to use the assets of the CSC are charged to the Group at a mutually agreed price by the Group and Cardiff University. The price
reflects the Group’s right to use the assets and is variable based on the CSC’s cash cost of production (including direct labour, materials and other foundry costs)
which provides the CSC with a low cost, low risk route to build its business whilst covering its manufacturing related operating costs.
The arrangements between the joint venture parties, structured to provide the Group with its required level of manufacturing capacity and to provide the CSC with
sufficient flexibility to develop its business envisaged that reliance on the Group as the cornerstone customer will reduce. The CSC continues to achieve key business
milestones, including the development of its own independent commercial customer relationships and funded collaborative research and development projects
which has resulted in its reliance on the Group gradually reducing as these independent relationships and revenue streams continue to develop with external
revenue totalling £1,732,000 (2020: £1,973,000). The CSC’s financial year end is 31 December which is co-terminus with the Group and has been used to prepare
the consolidated Group financial statements and the summary CSC financial information set out below. No dividend has been received by the Group from the
CSC (2020: £nil).
Summary information for Compound Semiconductor Centre Limited
£’000
Revenue
EBITDA
Profit from continuing operations
Profit for the period
Total comprehensive income for the period
Summary balance sheet
Non-current assets
Current assets
Current Liabilities
Non-current Liabilities
Equity attributable to Joint Venturers
140
IQE plc
Annual Report and Financial Statements 2021
2021
£’000
8,222
78
1,208
1,208
1,208
2021
£’000
5,057
2,026
(1,846)
(10,212)
(4,975)
2020
£’000
8,637
276
1,490
1,490
1,490
2020
£’000
5,823
2,221
(1,636)
(12,593)
(6,185)
Carrying value of equity interest in CSC Ltd
Net liabilities of CSC Ltd
Proportion of the Groups ownership interest
Groups share of net liabilities
Elimination of unrealised gains on transactions with CSC Ltd
Cumulative absorption of JV losses against long term JV preference share debt (note 5)
Cumulative unrecognised losses
Carrying amount of the Groups interest in the JV
Summary of cumulative unrecognised losses
Unrecognised losses brought forward
Unrecognised unrealised gains on transactions with CSC Ltd
Profit in the year
Reversal/absorption of JV losses against long term JV preference share debt (note5)
Cumulative unrecognised losses carried forward
2021
£’000
(4,975)
50%
(2,487)
(12,000)
163
14,324
–
2021
£’000
(17,642)
–
604
–
(17,038)
2020
£’000
(6,185)
50%
(3,091)
(12,000)
163
14,928
–
2020
£’000
(14,600)
–
746
(3,788)
(17,642)
Comparative financial information has been adjusted to reflect the final audited 2020 CSC financial statements. The adjustment to the disclosure has had no impact
on the Group’s consolidated loss for the year, total net assets or cash position.
31. Acquisitions
IQE Taiwan ROC
On 5 October 2020, the group acquired the remaining 9.82% of issued shares held by third party minority shareholders in its subsidiary, IQE Taiwan ROC, taking its
equity ownership from 90.18% to 100.00%. Immediately prior to the purchase, the carrying amount of the existing 9.82% non-controlling interest in IQE Taiwan ROC
was £4,335,000.
The acquisition was effected using a statutory share swap arrangement under Taiwan’s Business Mergers and Acquisition Law (the ‘Share Swap’) with the final total
consideration payable to the minority shareholders determined by the Taiwan Court in 2021.
Selling shareholders, representing 5.04% of the issued shares in IQE Taiwan ROC accepted the Share Swap and in 2020 received an aggregate consideration of
£1,437,646 which was settled via the issuance of 2,606,689 ordinary shares in IQE plc at a price per ordinary share of 55.15p.
Selling shareholders, representing 4.78% of the issued shares in IQE Taiwan ROC rejected the Share Swap and had their shares purchased for cash based at a price
determined by the Taiwan Court as part of the normal process followed under Taiwan’s Business Mergers and Acquisition Law. Cash consideration of £1,363,000 was
paid in 2020 to selling shareholders who rejected the Share Swap with further cash consideration and interest of £1,739,000 paid to these selling shareholders in
2021 following a final price determined by the Taiwan Court.
The Group recognised a decrease in non-controlling interests of £4,335,000. The effect on the equity attributable to the owners of IQE Taiwan ROC following the final
purchase price determination by the Taiwan Court during the current year is summarised as follows:
Carrying amount of non-controlling interests acquired
Consideration paid to non-controlling interests
– Equity consideration
– Cash consideration
(Deficit)/excess of consideration paid recognised in the transactions with non-controlling interests reserve within equity
2021
£’000
4,335
1,438
3,155
(258)
2020
£’000
4,335
1,438
1,363
1,534
141
Financial StatementsWhere innovation starts Notes to the financial statements continued
For the year ended 31 December 2021
32. Related party transactions
The Group purchased services during the year from Newport Wafer Fab Limited totalling £75,504 (2020: £69,212) and at the year-end had an outstanding payable of
£15,101 (2020: £nil) due to Newport Wafer Fab Limited. Newport Wafer Fab Limited is wholly owned by Neptune 6 Limited. Dr AW Nelson was a director of Neptune
6 Limited and in conjunction with his close family Dr AW Nelson owned a controlling interest in Neptune 6 Limited up until 5 July 2021 when he ceased to be a
person with significant control and his appointment as a director of Neptune 6 Limited was terminated.
Group
Transactions with Joint Venture - Compound Semiconductor Centre Limited
CSC was established by the Group and its joint venture partner as a centre of excellence for the development and commercialisation of advanced compound
semiconductor wafer products in Europe. On its formation the Group contributed assets to the joint venture valued at £12,000,000 as part of its initial investment.
The activities of CSC include research and development into advanced compound semiconductor wafer products, the provision of contract manufacturing services
for compound semiconductor wafers to certain subsidiaries within the IQE plc Group and the provision of compound semiconductor manufacturing services to other
third parties.
CSC operates from its manufacturing facilities in Cardiff, United Kingdom and leases certain additional administrative building space from the Group. During the year
the CSC leased this space from the Group for £115,000 (2020: £115,000) and procured certain administrative support services from the Group for £235,000 (2020:
£235,000). As part of the administrative support services provided to CSC the Group procured goods and services, recharged to CSC at cost, totalling £3,881,648
(2020: £3,740,282).
CSC entered into an agreement with the Group following its formation which has been extended in the current year and conveys to the Group the right to use the
assets of the joint venture for a minimum period up to 31 March 2023. Costs associated with the right to use the CSC’s assets are treated by the Group as operating
lease costs (see note 3a). Costs are charged by the CSC at a price that reflects the CSC’s cash cost of production (including direct labour, materials and site costs) but
excludes any related depreciation or amortisation of the CSC’s property, plant and equipment and intangible assets respectively under the terms of the joint venture
agreement between the parties. Costs associated with the right to use the CSC’s assets totalled £6,234,000 (2020: £6,365,000) in the year.
CSC sold property, plant and equipment to the Group during the year for £nil (2020: £1,423,750). The purchase price was based upon an independent valuation
performed by Liquidity Services UK with the consideration settled in cash.
At 31 December 2021 an amount of £1,030,000 (2020: £322,000 owed from) was owed from the CSC at year end.
In the Groups balance sheet ‘A’ Preference Shares with a nominal value of £8,800,000 (2020: £8,800,000) are included in financial assets at an amortised cost of £nil
(2020: £nil) and the Group has a shareholder loan of £244,000 (2020: £241,000) due from CSC.
Company
Transactions with Group Companies
2021
IQE (Europe) Limited
IQE Silicon Compounds Limited
Wafer Technology Limited
IQE USA Inc
IQE Inc
IQE KC LLC
IQE RF LLC
KTC Wireless LLC
Galaxy Compound Semiconductors Inc
IQE Taiwan ROC
MBE Technology Pte Ltd
CSDC Private Limited
Income
£’000
Expense
£’000
Trade
Receivable
£’000
Trade
Payable
£’000
Loan
Receivable
£’000
627
1,007
271
–
819
938
–
–
139
4
22
–
(66)
–
(33)
–
(2)
–
–
–
–
(11)
–
(2,938)
767
1,424
389
–
970
1,049
–
–
144
20
54
–
(8)
–
(19)
–
(2)
–
–
–
–
–
–
–
4,403
28,502
–
8,550
103,386
–
520
–
–
–
11,614
–
Loan
Payable
£’000
–
–
(8,319)
–
–
(5,582)
–
(16,623)
(6,753)
–
–
–
142
IQE plc
Annual Report and Financial Statements 2021
2020
IQE (Europe) Limited
IQE Silicon Compounds Limited
Wafer Technology Limited
IQE USA Inc
IQE Inc
IQE KC LLC
IQE RF LLC
KTC Wireless LLC
Galaxy Compound Semiconductors Inc
IQE Taiwan ROC
MBE Technology Pte Ltd
CSDC Private Limited
33. Commitments
Income
£’000
Expense
£’000
Trade
Receivable
£’000
Trade
Payable
£’000
Loan
Receivable
£’000
513
738
205
–
557
982
–
–
102
–
13
–
(100)
–
(15)
–
(92)
–
–
–
–
(11)
–
(936)
538
1,122
349
–
717
933
–
–
–
118
47
–
–
–
–
–
(5)
–
–
–
–
–
–
–
11,700
23,115
–
8,134
95,858
1,736
494
–
–
–
9,503
–
Loan
Payable
£’000
–
–
(4,866)
–
–
–
–
(15,973)
(6,102)
–
–
–
The Group had capital commitments at 31 December 2021 of £780,000 (2020: £nil).
34. Post balance sheet events
On 23 March 2022 the group announced to senior management the discontinuance of its nanoimprint lithography operations located in Taiwan. The cessation of
nanoimprint lithography activities is expected to result in restructuring cash costs that are currently being assessed and the impairment of intangible technology
development cost assets of £3,330,000. Technology assets developed prior to the cessation of activities will be retained by the Group.
143
Financial StatementsWhere innovation starts Glossary
APD
Avalanche Photodiode. A high-performance detector used for high-speed communication systems
Artificial intelligence (AI)
A simulation of human intelligence in machines, including machines which are programmed to mimic human action or exhibit
humanistic traits such as learning or problem-solving
Augmented Reality (AR)
A technology that superimposes a computer-generated image on a user’s view of the real world to provide a composite view
BiHEMT
A device that integrates a PHEMT and HBT into the same structure in order to reduce device footprint, commonly used in RF
systems such as mobile handsets
Compound semiconductor
A semiconductor formed from more than one element, typically comprising a mixture of elements from Groups III and V of the
Periodic Table.
Cloud computing
A network of remote servers hosted on the internet to store, manage and process data
CMOS++
cREO®
CVD
Device structure
DFB Laser
Dilute Nitride
EEL
Epitaxy (epitaxial growth)
Compound materials on Silicon
Crystalline Rare Earth Oxide. This is a novel material developed by IQE for next generation filter and GaN applications.
Chemical Vapour Deposition. IQE’s technique for making Advanced Silicon/Group IV epiwafers, characterised by using
compound sources (typically hydrides) flowed across a hot wafer where they are “cracked” (reacted) to get the desired
material. CVD occurs in a similar pressure regime to MOCVD
The term used to describe the particular series of epitaxial layers on a substrate crystal. They are typically specified by their
thickness, composition, electrical and opto-electronic properties
Distributed Feedback Laser. An EEL where a grating is integrated into the layer stack to improve performance, commonly used
in high speed communication systems
A material where small amounts of Nitrogen are added to GaAs in order to enable GaAs to be used in applications typically
reserved for InP
Edge Emitting Laser. A laser characterised by an elliptical light beam emitting from the edge of the wafer, often used in high-
speed communication systems
Deposition of high quality, crystalline layers on a substrate. By specifically choosing the composition and sequence of the layers
in epitaxial growth, the optical and electrical properties of the epiwafer are able to be tuned and these individual layers are
referred to as ‘epilayers’
Epiwafer or epitaxial wafer
The term used to describe the substrate crystal with epitaxial layers deposited thereon (see also (“wafer”)
GaAs
GaN
GaSb
Ge
HBT
InP
Gallium Arsenide
Gallium Nitride
Gallium Antimonide
Germanium
Heterojunction Bipolar Transistor, a commonly used device for power amplification in mobile handsets
Indium Phosphide
Integrated circuit
A combination of electronic devices integrated onto a single substrate or chip
Internet of Things (IoT)
Network of physical objects – “things” which are able to collect and transfer data over a wireless network without human
intervention
IQepiMo™
IQGeVCSEL 150™
IQDN-VCSEL
A template technology developed by IQE for RF filters and other applications requiring low resistance buried electrodes
A technology developed by IQE for 6” VSCSELs on Germanium
A technology developed by IQE for the growth of long wavelength (> 1300 nm) VCSELs on GaAs substrates
IR
LiDAR
MBE
MIMO
MOCVD
Infrared
Light detection and ranging – a method for measuring distances by illuminating the target with a laser light
Molecular Beam Epitaxy. One of IQE’s primary techniques for making compound semiconductor epiwafers, characterised by
deposition using elemental sources impinging on a hot wafer where a reaction occurs to get the desired material. MBE occurs
at extremely low pressures (known as ultra-high vacuum) that are comparable to that of outer space.
Multiple-input, multiple-output. Two or more transmitting or receiving antennas are used on a wireless device to optimise the
speed, range and reliability of that device.
Metal Organic Chemical Vapour Deposition. One of IQE’s primary techniques for making compound semiconductor epiwafers,
characterised by deposition using compound sources (typically metal organics and hydrides) that are flowed across a hot wafer
where they are “cracked” (reacted) to get the desired material. MOVCD occurs at much higher pressures than MBE and also
goes by the name MOVPE (Metal Organic Vapour Phase Epitaxy)
Nanoimprint Lithography (NIL)
A method of wafer patterning that allows cost effective, mass production of very small feature sizes
OEM
Original equipment manufacturer
Opto-electronic device
A device or structure in which light and electricity interact to produce, detect or manipulate light
PiN
A detector used in high-speed communication systems
144
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Annual Report and Financial Statements 2021
PHEMT
PQC
Reactor
RF
Pseudomorphic High Electron Mobility Transistor. A commonly used device for high-speed switching for wireless
communications
Photonic Quasi-crystal. A unique technology owned by IQE that enables beam steering capabilities for advanced optical
products
The equipment used to produce epitaxial layers on a substrate
Radio frequency
Semiconductor
A material with resistivity which lies somewhere between that of a conductor and an insulator
Si
SiC
Silicon
Silicon Carbide
Structured light scanner
A 3D scanning device which measures an object using projected light patterns and a camera system
Substrate
The term used to describe the base wafer used for the epitaxial substrate crystal growth process
Time of Flight (ToF) camera
A camera which calculates the distance between the subject by measuring the trip time of an artificial light signal emitted by a
laser or LED
VCSEL
Wafer
3D Sensing
5G
Vertical Cavity Surface Emitting Laser, an opto-electronic component used in a variety of applications
The term used to describe the substrate crystal in the form of thinly sliced discs or the substrate disc with one or more epitaxial
layers deposited upon it
Three-dimensional depth sensing technology which is enabled by IQE’s VCSELs
5th generation mobile network designed to provide enhanced connectivity and higher speeds
145
Financial StatementsWhere innovation starts Investor information
Registered Office
Pascal Close
St Mellons
Cardiff CF3 0LW
United Kingdom
Investor Relations
Amy Barlow
Phone: +44 (0)2920 839 400
investors@iqep.com
Principal Bankers
HSBC Bank Plc
8 Canada Square
London E14 5HQ
Auditors
KPMG LLP
3 Assembly Square
Britannia Quay
Cardiff CF10 4AX
Nominated Advisers and Brokers
NOMAD and Joint Broker
Peel Hunt LLP
7th Floor
100 Liverpool Street
London EC2M 2AT
Joint Broker
Citigroup Global Markets Limited
33 Canada Square
Canary Wharf
London E14 5LB
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Financial Public Relations
Headland Consultancy
Cannon Green,
1 Suffolk Lane
London EC4R 0AX
iqe@headlandconsultancy.com
Share price information
Exchange: London Stock Exchange FTSE AIM Index
Ticker: IQE:LN
ISIN: GB0009619924
Share price performance
as at 31 December 2021
Earning/loss per share: (3.87p)
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Annual Report and Financial Statements 2021
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IQE plc
Pascal Close
St Mellons
Cardiff, CF3 0LW
United Kingdom
www.iqep.com