Annual Report and Accounts 2023
As the world’s leading compound
semiconductor supplier, IQE is
positioned at the forefront
of technology to innovate
for a better tomorrow.
t
r
o
p
e
R
c
g
e
t
a
r
t
S
i
Contents
1. Strategic Report
Our business at a glance
Solving tomorrow’s challenges
Our investment case
IQE in the value chain
Chairman’s statement
Business model
Chief Executive Officer’s statement
Market review
Our strategy
Key performance indicators
Financial review
Stakeholder engagement
Section 172(1) statement
Responsible business
TCFD Report
Risk management
Viability statement
2. Corporate Governance
Board of Directors
Chairman’s Governance Overview
Audit & Risk Committee Report
Nominations Committee Report
ESG Committee Report
Remuneration Committee Report
Directors’ Remuneration Policy
Directors’ Remuneration Report
Directors’ Report
3. Financial Statements
Auditors Report
Financial Statements
Glossary
Investor information
2
4
6
8
10
12
14
18
20
22
24
28
30
31
42
50
56
58
60
65
70
71
72
74
80
86
90
98
159
161
Our Vision
Enabling a brighter future
through the power of
advanced semiconductors .
Our Mission
Our products are fundamental in
the technologies we use in our
everyday life. As leaders in
semiconductor materials innovation,
we are committed to responsibly
powering the next generation of
technology to drive society towards
a sustainable, Net Zero future. We
are enabling a global technology
revolution to create a connected,
safe and inclusive world.
Revenue
£115m2022: £167m
Net operating loss
£(26)m
2022: £(73)m
Adjusted EBITDA
£4m2022: £23m
Adjusted net debt
£(2)m2022: £(15)m
Cash capital expenditure
£12m2022: £9m
The nature and description of alternative performance
measures are included in Note 5 on page 124. Adjusted
net debt is defined on page 98.
IQE Annual Report and Accounts 2023
1
Our business at a glance
Who we are
What we do
IQE is the world’s only pure play
epitaxy provider with a global
footprint, strategically positioned
with manufacturing facilities on
three continents. We are
committed to serving our
customers in their respective
geographies, providing world-
class technology, flexibility and
supply chain security.
IQE provides compound
semiconductor manufacturing
services, delivering powerful
foundational technologies
shaping the future of innovation.
Compound semiconductors
are critical for enabling the
megatrends of the future thanks
to their advanced performance
characteristics, and we are
proudly partnering with our
customers to create the
intelligently connected,
low-carbon world of tomorrow.
Our growth potential
Connect
Sense
The digital world continues to evolve and
we reside in an era where connectivity has
become indispensable. From mobile devices
and 5G communication systems, to intelligent
gadgets in our households and vehicles, IQE’s
connectivity products facilitate high-performance
wireless communication.
The global sensing market remains poised for
substantial growth in the coming years, fuelled
by the demand for smart connected devices
capable of sensing and communicating with
their surroundings. Leveraging an impressive
background in 3D sensing, IQE sense technologies
are focused on enabling healthcare wearables,
LiDAR technology for autonomous vehicles,
and industrial automation.
2
IQE Annual Report and Accounts 2023
Our global footprint
Uniquely positioned for supply security
and scalability
Europe
Newport
Cardiff
Milton Keynes
North
America
Washington
Massachusetts
North Carolina
Asia
Taiwan
Power
Display
Energy is a cornerstone of both the digital
landscape and our daily existence. To tackle
global power-related challenges like
climate change, the utilisation of compound
semiconductors will be essential due to their
performance and energy efficiency advantages.
The growth of Power Electronics, particularly
enabled by GaN, is serving the rising demand for
electric vehicles, intelligent power grids, and
efficient consumer applications - critical elements
in the pursuit of achieving Net Zero.
Display technology will see notable evolution
driven by the growing expectations of consumers
and industries for more vivid and immersive
display experiences. IQE is focused on contributing
to the advancement of future display
technologies through microLED to deliver
enhanced performance and reduced power
consumption, through collaboration with key
strategic partners.
IQE Annual Report and Accounts 2023
3
Strategic Report Solving tomorrow’s challenges
Purposeful &
sustainable
innovation
IQE has a market-led approach to solve tomorrow’s
technology challenges
GaN-led diversification
strategy in action
Gallium Nitride (GaN) is an advanced material which is employed across a wide range
of applications and which offers numerous performance advantages over traditional silicon-
based semiconductors, as it enables smaller, more efficient devices. Today GaN underpins
5G/6G and advanced communication systems and it is emerging as a cornerstone material
for Power Electronics applications, such as in high-end consumer electronic chargers, and it
will enable key power sectors such as electric vehicles. In the longer term, GaN’s optical
properties will be exploited for efficient, ultra-high resolution displays (MicroLEDs).
IQE’s GaN-led diversification strategy prioritises market-led growth opportunities, leveraging
our established GaN pedigree. We have made strategic investments in our GaN capacity,
with four new GaN reactors being added to our fleet in the US and UK. We are poised to add
additional capacity as the market requires and the Company has a pipeline of GaN R&D
projects focused on enabling both Power Electronic devices and next-generation display
applications.
4
IQE Annual Report and Accounts 2023
Q&A
Rodney Pelzel
Chief Technology Officer
How will IQE enable
artificial intelligence in
a Net Zero world?
The global technology sector is undergoing
a rapid and transformational shift as it
seeks to meet the demands of artificial
intelligence (AI) and related applications.
AI is not a new technology, but it has
recently been thrust into the spotlight
thanks to consumer recognition of, and
growing demand for, generative AI.
With AI firmly in focus, demand for emerging
AI applications is poised to fuel growth in
the sector. Future use cases will require AI to
operate on real-time, dynamic, high-fidelity
inputs and outputs at the edge. This
presents challenges for next generation
sensing and display technologies. In
addition, the need for high speed, ultra-
reliable, low-latency, high-bandwidth
connectivity will create bottlenecks as the
amount of AI-generated data grows
exponentially. Together with silicon,
compound semiconductors will be needed
to overcome these challenges and deliver
the AI ecosystem of the future. Solutions will
include GaAs and InP-based photonics for
accurate sensing; GaN and GaAs-based
microLEDs for efficient, ultra-high resolution
displays and AR/VR environments; and GaN,
GaAs and InP-based next-gen 5G/6G
connectivity (both wired and wireless).
Scaling of AI will require large amounts of
incremental power which will generate
emissions which is at odds with energy
efficiency targets and Net Zero objectives.
Consequently, GaN-power devices will
become essential for the achievement of AI
in an environmentally responsible manner.
The future is faster, cleaner and more
efficient with compound semiconductors;
they are the cornerstone for enabling AI in
a Net Zero world.
IQE Annual Report and Accounts 2023
5
Strategic Report Our investment case
Solving
tomorrow’s
challenges
Addressing the technological problems of
the future requires new thinking, today. IQE
is at the forefront of advanced compound
semiconductor materials innovation offering
leading-edge solutions and an unmatched
customer experience.
6
IQE Annual Report and Accounts 2023
Our key differentiators
1
Only global pure play epitaxy supplier
We are strategically positioned with the industry’s most comprehensive product portfolio and
unique three-continent footprint. We offer our customers unrivalled flexibility, scalability and
supply security of the world’s most advanced compound semiconductor products.
2
Market-led approach
We partner with our customers to create differentiated solutions to address market challenges
using our scalable materials platforms.
3
Expansion capacity and scalability
In a market with high barriers to entry we have a significant first mover advantage for
scaling our operations to meet future demand, with the potential to expand 3x within
our current site footprint.
4
Unmatched expertise
As global epitaxy experts, IQE has over three decades of experience and an established track
record of creating leading-edge technology with an unrivalled intellectual property portfolio.
5
Cornerstone of device technology
Due to their high performance and efficiency characteristics, compound semiconductors
are essential for enabling an intelligently connected, immersive, low-carbon world.
6
Delivering value
We continue to transform our commercial and operational model to deliver sustainable growth
for all of our stakeholders, including our customers, partners, employees and shareholders.
IQE Annual Report and Accounts 2023
7
Strategic Report IQE in the value chain
Strategically positioned
in the global value chain
R eactor
Substrates
Base materials
IQE IP
E
p
i
l
a
y
e
r
s
a
r
e deposit e d o
e
t
a
r
n a subst
Epitaxy is where the value is created
8
IQE Annual Report and Accounts 2023
As the only pure play epitaxy provider with a global
footprint, IQE remains uniquely positioned within the
global semiconductor ecosystem.
Foundries
Device fabrication
Fabless
Design
Device makers
Device manufacture
Smart Connected
Devices
Automotive
and Industrial
Communications Infrastructure
and Security
+ Read more about our
growth markets on page 18
IQE Annual Report and Accounts 2023
9
Growth marketsStrategic Report Chairman’s statement
“We are focused
on improving
future business
performance”
Phil Smith
Chairman
With the passing of another year
as Chairman of IQE, I am pleased
to be able to reflect on an
important period for the business.
While it is true that IQE faced some
significant challenges in 2023, it is
equally important to recognise
how the Company navigated
through a dynamic and at times
unpredictable macro environment.
We remained steadfast in our
commitment to delivering for our
customers and stakeholders, and
progressing our defend and diversify
strategy. I would like to thank our
teams for their resilience and hard
work as we responded to these
challenges. As we continue on
the growth journey ahead, I am
confident in our collective ability
to overcome difficulties and
emerge stronger, guided by our
shared commitment to building
a connected and sustainable
future for all.
Trading performance
The Group’s trading performance
in 2023 reflects the challenging
macro-economic environment
that drove an industry-wide
downturn, leading to a reduction
in customer orders. Reported
revenue for the period was £115m,
a 31% reduction year-on-year.
In this challenging operating
environment we took decisive
action to manage costs and deliver
immediate efficiencies and longer-
term margin benefits, including
making the difficult decision to
reduce headcount and defer some
capital expenditure to preserve our
cash position. We also undertook a
10
IQE Annual Report and Accounts 2023
successful equity fundraise of £30m
in May to strengthen our balance
sheet and underpin this cost action.
As 2023 progressed, we were able to
achieve double-digit revenue growth
in H2 2023 versus H1 2023, and we
were profitable at an EBITDA level for
the full year.
Board matters
I am pleased with the
strengthening of IQE’s Board
following the appointment of Jutta
Meier as Chief Financial Officer in
January 2024. Jutta joined shortly
after we welcomed both Bami
Bastani and Maria Marced to the
Board as Non-executive Directors,
following the retirement of Sir Derek
Jones. They collectively bring a
wealth of experience from within
the semiconductor industry to IQE.
Also during 2023 we were fortunate
to have Harmesh Suniara as
another addition to the Board.
Harmesh has significant
capital markets experience as a
representative of Lombard Odier,
a major shareholder in IQE, and
possesses a deep understanding
and appreciation of the business.
Looking ahead
There are positive signs that the
temporary semiconductor industry
downturn is stabilising, and we saw
continued pockets of recovery in H2
2023. This improvement is expected
to continue into 2024 as supply
chains normalise and customer
demand recovers.
IQE has made significant progress
implementing its diversification
strategy and our strategic
investment in GaN capacity in
2023 is anticipated to unlock further
opportunities throughout 2024. There
have been new customer design
wins in GaN Power electronics and
the MicroLED markets, whilst at the
same time we are broadening our
penetration into the China wireless
market. As the business expands its
customer base across the breadth
of its product portfolio including for
applications such as AI, and ramps
in strategic growth areas, we are
focused on improving future
business performance and margins.
Phil Smith
Chairman
9 April 2024
Q&A
Why is government
engagement important
for IQE?
We have seen repeatedly that
government support is a critical
element in underpinning a strong
semiconductor ecosystem in many
jurisdictions around the globe. For IQE,
engaging with governments is
essential for ensuring regulatory
alignment and fostering an
environment which is conducive
to innovation. Whether it is in the UK,
US or further afield, we are engaging
with government on important
policy reforms and investment
incentives designed to propel the
semiconductor industry forward,
stimulating economic growth and
technological advancement.
I was personally thrilled to see IQE
mentioned in the UK Government
Semiconductor Strategy which was
released in May. This strategy will be
significant in shaping the nation's
technological future and global
competitiveness, and we are proud
to have Americo confirmed as a
member of the UK Government
Semiconductor Advisory Panel, to
actively contribute his expertise
towards the realisation of this strategy.
Concurrently, IQE is also engaging with
our counterparts on the US CHIPS Act,
which also aims to bolster domestic
semiconductor production and supply
chain resilience, ensuring the nation's
strategic autonomy and competitiveness
in the global semiconductor market.
We are excited to witness the tangible
benefits materialise from such
important government initiatives,
propelling IQE and the wider
semiconductor industry towards a
brighter and more resilient future.
IQE Annual Report and Accounts 2023
11
Strategic Report
Business model
Capturing value through a
resilient business model
How we create value:
Market
intelligence
IQE's success starts
with a deep
understanding of,
and engagement
with, the markets
that require our
cutting-edge
capabilities to
understand their
needs today and
in the future.
Research &
development
Working in
partnership with
technology leaders
across the supply
chain as well as
in academia,
programmes of
innovation are
mapped to our
core strengths to
create leading
capabilities and to
win opportunities.
Product portfolio
Our differentiated
technology is used
to develop market-
leading products
with superior
performance
and quality
characteristics,
enabling the
devices required
by the connected,
immersive, low-
carbon world
of today
and tomorrow.
Manufacturing
capacity at scale
Investment in
mass production
infrastructure in
our foundries on
three continents
has created a
manufacturing
platform which
is geopolitically
resilient and can
scale volume to
capture superior
economies
of scale.
Customer
qualification
Combining our
superior product
and manufacturing
pedigrees with
exacting quality
standards enables
broad product
qualification with
leading
international
customers.
Underpinned by:
Our people
IQE’s strength lies in the
expertise and diversity
of our workforce and we
have a deep culture of
teamwork and
collaboration. For over
three decades we have
been thinking big, driven
by a relentless passion
for what we do.
Our strategic goals
By investing in the future
of compound
semiconductors and
scaling the business for
growth, IQE is targeting
expanding margins and
cash flows. Integral to
this is the development
and mass production of
advanced materials that
are key to enabling
macro trends such as
the proliferation of
5G/6G communications,
WiFi 6/7 connectivity, the
Internet of Things,
electrification of vehicles,
healthcare wearables,
AR/VR, the Metaverse
and AI.
Sound governance
and risk management
As a global operator with
an over 30-year
heritage, IQE prioritises
risk mitigation to ensure
continuity of operations.
Oversight from our Board
ensures the strategy and
execution of our
business through
incorporation of best
practice and proactive
risk management while
retaining the agility to
operate in the dynamic,
fast-paced
semiconductor industry.
Responsible business
operations
Our health and safety
policies and procedures
prioritise the health and
safety of our people, the
environment and the
communities in which
we operate. We view our
global supply chain as
an extension of our
business and work
closely with all partners
as part of our
commitment to
operating responsibly.
12
IQE Annual Report and Accounts 2023
What makes our model work
The value we share
Strategic customer partnerships
IQE is a materials solutions provider,
enabling advanced technologies
throughout major global supply
chains. We have well-established,
trusted relationships with market-
leading customers up and down
the value chain.
Highly skilled and
experienced people
IQE attracts and develops the
top talent in the compound
semiconductor industry. We use our
wealth of technical expertise and
superior product portfolio to enable
our customers to lead in their markets.
Breadth of
intellectual property
Over its 30+ year history, IQE has
created a strategic patent portfolio
and developed significant process IP,
giving it an enviable and protected
position within diverse technology
markets.
Widely recognised
technology leadership
As a materials specialist committed
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
on three major continents,
IQE has broad market access,
close customer proximity and
global manufacturing flexibility
and resilience.
Superior quality is
a core competence
IQE has a reputation for
manufacturing technologically
complex and demanding products
of the highest quality. Our wafers
drive superior yields and unit
economics for our customers.
Customers
£3mTechnology-related
development expenditure
2022: £4m
Employees
1,528
Hours of learning
completed
2022: 2,064
Investors
£12mCash capital expenditure
investment
2022: £9m
Communities
1 day
Annual paid employee volunteering
leave entitlement
2022: 1 day
Environment
19,603 tCO2e
Total GHG emissions
2022: 22,180 tCO2e
IQE Annual Report and Accounts 2023
13
Strategic Report Chief Executive Officer’s statement
“IQE is
powering
tomorrow’s
technology,
today.”
Americo Lemos
Chief Executive Officer
As I reflect on my second year with
the business, I am pleased to
share our accomplishments and
progress in a year that brought
both challenges and opportunities
for IQE.
We entered 2023 reinvigorated
and full of momentum off the
back of our award-winning
Capital Markets Day in November
2022, which saw us define a new
strategic direction for the
Company. While this was received
very positively, the macro
environment around us was not so
welcoming and these conditions
persisted throughout the year.
In January we announced we
were seeing destocking in the
wider industry which we foresaw
might impact upon demand from
existing customers. Unfortunately,
the rate at which this accelerated
was quicker than first anticipated,
leading us to revise our H1 2023
numbers down in March. While this
is no doubt disappointing, it was in
line with what many others were
experiencing during this cyclical
industry-wide downturn. With the
exceptions of those in Automotive
and AI markets, many of IQE’s
peers in the semiconductor
industry announced downward
revisions to their full year
2023 estimates.
14
IQE Annual Report and Accounts 2023
Against this backdrop, in May IQE
raised £30m through a fundraise
to deliver a robust balance sheet
and headroom position, provide
liquidity and fund investment to
execute our strategy. We
prioritised capital expenditure
investment in Gallium Nitride
(GaN) capacity in order to enable
the business to continue its
diversification into high-growth
Power and Display markets. This
was focused on the purchase of
four GaN reactors which have
been installed in our sites in both
the UK and US.
Evidence of our GaN strategy in
motion was the announcement in
September that we had entered
into a strategic collaboration with
VisIC Technologies, a global leader
in the provision of GaN power
solutions to the automotive sector.
Our partnership will develop the
highest reliability power products
for use in electric vehicle inverters.
This technology promises to
reduce power consumption,
increase reliability and enhance
performance in electric vehicles,
key to achieving Net Zero.
Both industry and government are
focused on enabling a low-carbon
future, and during 2023 we were
focused heavily on government
engagement. We saw the delivery
of the UK Government
Semiconductor Strategy which
named IQE and identified
compound semiconductors as
one of the areas in which the UK is
world-leading, stating that
maintaining this position in
compound semiconductor
innovation and manufacturing will
be critical. In August I was
fortunate to be invited to join the
UK Government Semiconductor
Advisory Panel, which is guided by
the three key goals set out in the
Semiconductor Strategy, namely
growing the domestic
semiconductor sector, mitigating
the risk of supply chain disruptions
and protecting national security.
As part of IQE being a global
company that is critical to US
supply chains, we are also
engaged with the US government
regarding CHIPS Act funding. In an
era defined by rapid
advancements in artificial
intelligence, quantum computing
and connectivity, semiconductors
Q&A
Why is GaN central
to IQE’s
diversification
strategy?
For IQE, developing our gallium
nitride (GaN) capacity is
crucial due to the rapid
adoption of this material and
growing global demand for
Power Electronics. GaN offers
numerous performance
advantages over traditional
silicon-based semiconductors,
including improved energy
efficiency and faster switching
speeds. This results in
significant reductions in power
consumption and greenhouse
gas emissions, making these
‘third’ generation
semiconductors a vital
contributor as we collectively
work towards a Net Zero world.
Of particular interest to
IQE is GaN use in power
electronics, enabling a wide
range of energy efficient
products across the
automotive, communications
infrastructure and
telecommunications space.
IQE has a long history in GaN,
creating the first GaN HEMT for
RF applications in 1995.
Recognising this heritage and
the opportunities ahead, IQE
has invested in our capacity to
position ourselves as a
competitive manufacturing
force in GaN. By strengthening
our capabilities, we have
grown our ability to meet
market demand whilst
remaining at the forefront of
this technology. Our strategic
decision to diversify into GaN
Power Electronics is a vital step
towards driving innovation
and sustainability as we work
towards a low-carbon world.
IQE Annual Report and Accounts 2023
15
Strategic Report
Chief Executive Officer’s statement continued
“People are at the heart of
semiconductor innovation.”
are the backbone of innovation
across industries. By fostering a
robust semiconductor ecosystem,
governments secure their position
at the forefront of technological
innovation and stimulate
economic growth.
Talent is critical in our industry and
we recognise that people are at
the heart of semiconductor
innovation. As such, we are
partnering with universities around
the globe to build a talent pipeline
to fuel our growth. One example is
our announcement in December
of the extension of our long-term
partnership with Cardiff University,
focused on expanding research
capacity in compound
semiconductor technologies and
skills provision at Postgraduate
and Doctoral levels.
As we continue to build our
commercial engine, we have
strengthened our Board and
Executive Leadership Team (ELT) to
attract diverse individuals with
significant industry experience.
Peter Rabbeni was appointed as
Senior Vice President,
Communications Infrastructure
and Security, in May 2023. Jutta
Meier joined the Company as CFO
in January 2024, and was joined
by Rina Pal-Goetzen as Vice
President of Government Affairs.
Operational performance
In 2023 we made good progress
on our diversification strategy into
Power Electronics. Having invested
in GaN capacity, both in the UK
and USA, we focused on the
development of products for
automotive, data centre and
consumer markets. We delivered
650V (D-mode and E-mode)
samples to Tier 1 customers. IQE
witnessed a strong pull and
investment in the Power
Electronics ecosystem and we
continued to expand our
engagements with foundry,
fabless and OEMs to deliver a full
roadmap of GaN devices.
We demonstrated progress on our
strategic commitment to diversify
into GaN technologies for
MicroLED, with the launch of new
portfolio of 200mm (8") red, green
and blue (RGB) epitaxy for
microLED display qualification.
IQE's differentiated microLED
offering will provide customers
with faster time-to-market
options for display-level
qualification and accelerate the
deployment of microLEDs across
many end applications.
In October we announced the
industry's first 150 mm (6") Indium
Phosphide (InP) platform enabling
the scaled production of electro-
optic devices at the core of
artificial intelligence (AI), machine
learning and cloud data centre
networks, in collaboration with
Kelvin Nanotechnology and the
James Watt Nanofabrication
Centre. By scaling our current laser
materials technology to deliver a
fab-ready service at this size, we
are providing an immediate
competitive advantage.
We continued to forge strong
customer partnerships and were
pleased to confirm the
qualification of Raytheon at IQE’s
North Carolina site, for the
manufacture of epitaxial wafers
for use in advanced infrared
sensing and imaging. As a
strategic partner for over 15 years,
IQE also received a Raytheon
Premier Supplier Excellence Award,
demonstrating the continued
confidence that Raytheon has in
IQE. Additionally, in 2023 we
proudly received a Gold Tier
Supplier Award from BAE Systems,
the third such accolade received
by the Company, in recognition of
IQE’s cutting-edge technology and
high levels of service.
Financial performance
IQE’s FY 2023 financial results serve
as a reflection of the challenging
operating environment we
encountered throughout the year.
The reduction in yearly revenues
has been mitigated by a
combination of our successful
equity fundraise, careful working
capital management, cash
preservation measures including a
reduction in headcount, and the
deferral of certain capital
expenditure in order to improve
our net debt position. In May the
Company also entered into an
agreement with its lending bank,
HSBC, to extend the term of its
$35m revolving credit facility to
May 2026.
Revenues from our Wireless
business, which enables
connectivity-related products,
were significantly affected largely
due to weakness in global handset
demand and inventory surplus in
supply chains. Wireless revenues
for the period were down 29% at
£53.9m (2022: £76.0m).
Our Photonics business, which is
focused on our advanced sensing
portfolio, also saw revenues
decline primarily as a result of
softness in the mobile handset
market and a slowdown in Asian
telecoms infrastructure
programmes. Photonics revenues
for the period were down 33% at
£59.1m (2022: £88.7m).
CMOS++ revenues saw
improvement in H1 2023 due to
growth in silicon-based switches
for power control, but overall we
experienced a yearly decline of
20% with revenues of £2.3m
(2022: £2.8m). Our Display and
Power divisions were not reported
separately in 2023.
Despite the prolonged weakness
in the semiconductor industry, we
delivered 22% growth from H1 to H2
2023 and a return to a positive
adjusted EBITDA position.
ESG progress
We are developing frameworks
and processes to adopt and align
with the Task Force on Climate-
related Financial Disclosures
(TCFD) and I am proud that our
first TCFD Statement is published
in this Annual Report. During 2023
our ESG Committee was focused
on developing emissions targets
in accordance with the Science
Based Targets initiative (SBTi),
with IQE on track to submit
targets within the 24 month
commitment window.
16
IQE Annual Report and Accounts 2023
Outlook
Having navigated the challenges
of 2023, we entered 2024 with
increasingly positive momentum
that the semiconductor industry
as a whole is beginning to see
signs of recovery. Acknowledging
the cyclicality of the sector and
despite continuing uncertainties in
the global economy, we remain
confident in a return to growth.
By leveraging the lessons learned
during this difficult period, we are
well positioned to adapt swiftly to
changing market dynamics and
capitalise on emerging
opportunities. We continue to be
focused upon reshaping our cost
base by implementing cost
control and cash preservation
measures, in order to improve
our margins.
Our commitment to innovation
and customer excellence remains
unwavering, providing a solid
foundation for sustainable growth.
Additionally, we are constantly
exploring new avenues for
expansion and diversification
through close collaboration with
market leaders and I am pleased
with the strong pipeline of
opportunities in front of us.
IQE is powering tomorrow’s
technology, today and I am
confident in the vital role
compound semiconductors, and
therefore the Company, will play in
the connected, immersive and
responsible world of the future.
We are prepared to navigate the
major technological trends in the
industry including AI and the drive
to Net Zero, whilst our global
footprint strategically positions us
to positively respond to changing
geopolitical situations. The
significant value that
semiconductors bring to our
daily lives present growth
opportunities to IQE as we
implement our strategy and
emerge as a stronger and more
resilient business.
Americo Lemos
Chief Executive Officer
9 April 2024
“We have strengthened
our Board and
Executive Leadership
Team to attract
diverse individuals
with significant
industry experience.”
IQE Annual Report and Accounts 2023
17
Strategic Report
Market review
Growth markets
Growth market
Market opportunity
Smart Connected
Devices
$5.5bn
device market size by 2027*
Communications
Infrastructure and
Security
Smart Connected Devices enrich our lives and enhance our interactions with the
connected world. On-Device AI, smarter sensing and immersive displays are driving a
resurgence in mobile platform growth. AR/VR devices will transform how we work, relying
on IQE materials to see, compute and sense the fused physical and digital worlds. This will
create an insatiable demand for data, which 5G+ mobile platforms and networks will
transmit, enabled by IQE’s next-generation wireless materials. With over six billion devices
connected to the internet, nearly one device for every person on the planet, the Internet
of Things is already transformational and is dependent on reliable and secure digital
infrastructure powered by IQE materials.
$10.1bn
communications infrastructure device market size by 2027*
Cutting-edge compound semiconductors enable the entire end-to-end data path.
High-speed wireless and wireline networks guarantee rapid, reliable data transmission,
ensuring that ever-increasing bandwidth and low-latency requirements can be met.
Increasing need for data centres to support generative AI applications require power-
intensive processing demanding improved efficiency to lower operating costs.
Compound semiconductors also uniquely harness the power of light to enable
high-performance imaging and detection across multiple aerospace, security and
intelligence platforms. They are the backbone of the networks that our information
security relies upon.
Automotive
and Industrial
32%
device market CAGR 2022-2027*
Compound semiconductors that assist with sensing and power conversion are at the
core of the digital chassis which is revolutionising vehicle functionality today. Our
materials are being architected into multiple new automotive electronics platforms
which include driver assistance (ADAS), wireless connectivity, multimedia and powertrain
technologies. The car as we know it is evolving rapidly, with electric, autonomous and
connected cars being the way of the future.
Compound semiconductors are also allowing industrial and manufacturing sector
challenges to be overcome by connecting the real world and digital domains together.
Integrating technologies such as the Internet of Things, cloud computing and machine
vision are revolutionising manufacturing and distribution of products. IQE’s multi-platform
materials solutions are a critical enabler of Industry 4.0.
*
Sources: Yole Intelligence, IQE sources Q4 2022
18
IQE Annual Report and Accounts 2023
Augmented/Virtual Reality and the Metaverse
AR/VR provides a new platform for compound semiconductor use, enabling spatial computing to change the way we live and work by
fusing digital and physical worlds. This hardware development will create a plethora of opportunities for IQE, through leveraging our
leadership position in 3D sensing and wireless connectivity, complemented by microLED displays. Generative AI will be required to compute
vast amounts of AR/VR data faster, enabling new spatial environments to be built, powered by the networks which rely on IQE materials.
MicroLED displays
Smart devices require crystal clear displays to deliver a high-quality immersive experience. Panels constructed from compound
semiconductor-based materials are transforming the display industry. Offering ultra-high resolution, low power consumption and the
ability to construct flexible and transparent screens, MicroLED will become ubiquitous, launching in wearable and AR/VR platforms ahead
of wider adoption in large format displays. The ability to manufacture at scale will be essential to address microLED market growth, and IQE
has the ability to deliver this from its three-continent manufacturing footprint.
Healthcare wearables
Smart watches are now a critical enabler of new lifestyle functionality. As they evolve, the development of a miniaturised ‘spectrometer’
based upon compound semiconductor lasers and detectors will revolutionise how smart watches are used, becoming tomorrow’s ‘clinic
on a wrist’. They will enable the detection of multiple biomarkers non-invasively. This technology will transform digital healthcare, enabling
improvements in health and disease prevention on a global scale.
5G/6G
Businesses and individuals alike depend upon the reliability and performance provided by 5G communications. 5G mobile and fixed
wireless access systems provide the fastest mobile data rates available today and are made possible by technologies pioneered by IQE.
Compound semiconductors such as Gallium Arsenide (GaAs) transmit and convert data up to 100 times faster than silicon, providing
greatly reduced network latency, increased data throughput and are more power efficient delivering all-day battery life. With data
bandwidth needs growing exponentially, driven by the growth of the Metaverse, machine learning and connected intelligent devices,
intermediary standards using C-band (FR3) and sixth generation (6G) networks will define the second datacom revolution and will
leverage the benefits of compound semiconductors like GaAs, GaN and even InP to enable the efficient use of these new frequency bands.
These products are now being developed with IQE materials.
IQE is at the heart of fibre optic networks which satisfy our insatiable appetite for data. The adoption of 5G and 6G will see a rapid increase
in fibre optical connections, linking new small cells to fronthaul networks, while 5G and 6G will also generate very significant increases in
backhaul traffic over optical fibre. Scaling optical transport capacity will require new technologies such as Silicon Photonics which are
Optical networks
enabled by IQE’s materials solutions.
Data centres
AI is the focus of data centre transformation, combined with the insatiable consumption of data-intensive applications such as HD video
streaming, the exponential growth in internet traffic over the next decade is driving rapid growth in new hyper-scale data centres requiring
extreme data rates only achievable through compound semiconductors pioneered by IQE. As speeds increase, energy consumption also
scales and these same systems will also require efficient power conversion sources. IQE’s green photonics and Power electronic materials
solutions keep energy consumption in check and allow the data revolution to be achieved in a sustainable manner.
Intelligent sensing
No other materials offer the same level of performance or functionality as compound semiconductors. Industry leadership through
Full Spectrum coverage sees IQE engineered into a wide range of consumer, security, and defence sensing platforms. We enable our
customers to image the world around us, with greater resolution and detection sensitivity, providing a competitive edge which enables
them to ‘see sooner’ and manage threats. Additionally, our sensing technologies are employed to assess air pollution from space, utilising
our multispectral infrared materials portfolio.
Power train
Advanced sensing
Communications
Drive cycle efficiency is at the forefront of vehicle powertrain design; increased range and faster charging times are only made possible
with compound semiconductors. IQE’s ‘wide bandgap’ power semiconductor solutions provide competitive advantage at scale, enabling
customer cost competitiveness across multiple xEV segments and vehicle charging infrastructure platforms. The demand for power
compound semiconductors will exceed that of incumbent silicon technology, positioning IQE at the forefront of transport electrification.
IQE is a pioneer in VCSEL technology used in consumer mobile 3D Sensing platforms. Sensing is evolving and new wavelengths are being
unlocked which reveal richer levels of information. Sensing materials engineered for longer wavelength detection are expanding use cases
which include spatial imaging to create virtual AR/VR worlds. Our portfolio of automotive LiDAR VCSELs are enabling all-weather imaging at
high resolution, providing a scalable platform as high-level ADAS technology adoption levels rise.
We are at the cusp of a revolution in the use of AI-enabled communications systems. Adaptive networks will efficiently tailor network
resources in high-traffic areas such as stadiums and shopping malls. Vehicles exchanging data with each other, the Cloud and
surrounding infrastructure will revolutionise traffic safety and increase the efficiency of transport. Dedicated short-range communication
and local cellular networks are creating new 5G exploitation paths for Vehicle to everything (V2X) communications. These use cases
require compound semiconductor-based RF and optical devices due to their ultra-reliable, low-latency and high-sensitivity performance,
enabling the rapid exchange of time-sensitive and safety-critical information for further processing and decision making. This data will be
critical in enabling the next generation of automated driving and intelligent mobility.
Smart Connected
Devices
$5.5bn
device market size by 2027*
Smart Connected Devices enrich our lives and enhance our interactions with the
connected world. On-Device AI, smarter sensing and immersive displays are driving a
resurgence in mobile platform growth. AR/VR devices will transform how we work, relying
on IQE materials to see, compute and sense the fused physical and digital worlds. This will
create an insatiable demand for data, which 5G+ mobile platforms and networks will
transmit, enabled by IQE’s next-generation wireless materials. With over six billion devices
connected to the internet, nearly one device for every person on the planet, the Internet
of Things is already transformational and is dependent on reliable and secure digital
infrastructure powered by IQE materials.
Communications
Infrastructure and
Security
$10.1bn
communications infrastructure device market size by 2027*
Cutting-edge compound semiconductors enable the entire end-to-end data path.
High-speed wireless and wireline networks guarantee rapid, reliable data transmission,
ensuring that ever-increasing bandwidth and low-latency requirements can be met.
Increasing need for data centres to support generative AI applications require power-
intensive processing demanding improved efficiency to lower operating costs.
Compound semiconductors also uniquely harness the power of light to enable
high-performance imaging and detection across multiple aerospace, security and
intelligence platforms. They are the backbone of the networks that our information
security relies upon.
Automotive
and Industrial
32%
device market CAGR 2022-2027*
Compound semiconductors that assist with sensing and power conversion are at the
core of the digital chassis which is revolutionising vehicle functionality today. Our
materials are being architected into multiple new automotive electronics platforms
which include driver assistance (ADAS), wireless connectivity, multimedia and powertrain
technologies. The car as we know it is evolving rapidly, with electric, autonomous and
connected cars being the way of the future.
Compound semiconductors are also allowing industrial and manufacturing sector
challenges to be overcome by connecting the real world and digital domains together.
Integrating technologies such as the Internet of Things, cloud computing and machine
vision are revolutionising manufacturing and distribution of products. IQE’s multi-platform
materials solutions are a critical enabler of Industry 4.0.
*
Sources: Yole Intelligence, IQE sources Q4 2022
IQE is focused on three strategic markets which offer significant growth
potential due to the proliferation of technology megatrends. As these develop,
the unique performance characteristics of compound semiconductors will be
necessary to enable their success.
Megatrends and opportunities
Augmented/Virtual Reality and the Metaverse
AR/VR provides a new platform for compound semiconductor use, enabling spatial computing to change the way we live and work by
fusing digital and physical worlds. This hardware development will create a plethora of opportunities for IQE, through leveraging our
leadership position in 3D sensing and wireless connectivity, complemented by microLED displays. Generative AI will be required to compute
vast amounts of AR/VR data faster, enabling new spatial environments to be built, powered by the networks which rely on IQE materials.
MicroLED displays
Smart devices require crystal clear displays to deliver a high-quality immersive experience. Panels constructed from compound
semiconductor-based materials are transforming the display industry. Offering ultra-high resolution, low power consumption and the
ability to construct flexible and transparent screens, MicroLED will become ubiquitous, launching in wearable and AR/VR platforms ahead
of wider adoption in large format displays. The ability to manufacture at scale will be essential to address microLED market growth, and IQE
has the ability to deliver this from its three-continent manufacturing footprint.
Healthcare wearables
Smart watches are now a critical enabler of new lifestyle functionality. As they evolve, the development of a miniaturised ‘spectrometer’
based upon compound semiconductor lasers and detectors will revolutionise how smart watches are used, becoming tomorrow’s ‘clinic
on a wrist’. They will enable the detection of multiple biomarkers non-invasively. This technology will transform digital healthcare, enabling
improvements in health and disease prevention on a global scale.
5G/6G
Businesses and individuals alike depend upon the reliability and performance provided by 5G communications. 5G mobile and fixed
wireless access systems provide the fastest mobile data rates available today and are made possible by technologies pioneered by IQE.
Compound semiconductors such as Gallium Arsenide (GaAs) transmit and convert data up to 100 times faster than silicon, providing
greatly reduced network latency, increased data throughput and are more power efficient delivering all-day battery life. With data
bandwidth needs growing exponentially, driven by the growth of the Metaverse, machine learning and connected intelligent devices,
intermediary standards using C-band (FR3) and sixth generation (6G) networks will define the second datacom revolution and will
leverage the benefits of compound semiconductors like GaAs, GaN and even InP to enable the efficient use of these new frequency bands.
These products are now being developed with IQE materials.
Optical networks
IQE is at the heart of fibre optic networks which satisfy our insatiable appetite for data. The adoption of 5G and 6G will see a rapid increase
in fibre optical connections, linking new small cells to fronthaul networks, while 5G and 6G will also generate very significant increases in
backhaul traffic over optical fibre. Scaling optical transport capacity will require new technologies such as Silicon Photonics which are
enabled by IQE’s materials solutions.
Data centres
AI is the focus of data centre transformation, combined with the insatiable consumption of data-intensive applications such as HD video
streaming, the exponential growth in internet traffic over the next decade is driving rapid growth in new hyper-scale data centres requiring
extreme data rates only achievable through compound semiconductors pioneered by IQE. As speeds increase, energy consumption also
scales and these same systems will also require efficient power conversion sources. IQE’s green photonics and Power electronic materials
solutions keep energy consumption in check and allow the data revolution to be achieved in a sustainable manner.
Intelligent sensing
No other materials offer the same level of performance or functionality as compound semiconductors. Industry leadership through
Full Spectrum coverage sees IQE engineered into a wide range of consumer, security, and defence sensing platforms. We enable our
customers to image the world around us, with greater resolution and detection sensitivity, providing a competitive edge which enables
them to ‘see sooner’ and manage threats. Additionally, our sensing technologies are employed to assess air pollution from space, utilising
our multispectral infrared materials portfolio.
Power train
Drive cycle efficiency is at the forefront of vehicle powertrain design; increased range and faster charging times are only made possible
with compound semiconductors. IQE’s ‘wide bandgap’ power semiconductor solutions provide competitive advantage at scale, enabling
customer cost competitiveness across multiple xEV segments and vehicle charging infrastructure platforms. The demand for power
compound semiconductors will exceed that of incumbent silicon technology, positioning IQE at the forefront of transport electrification.
Advanced sensing
IQE is a pioneer in VCSEL technology used in consumer mobile 3D Sensing platforms. Sensing is evolving and new wavelengths are being
unlocked which reveal richer levels of information. Sensing materials engineered for longer wavelength detection are expanding use cases
which include spatial imaging to create virtual AR/VR worlds. Our portfolio of automotive LiDAR VCSELs are enabling all-weather imaging at
high resolution, providing a scalable platform as high-level ADAS technology adoption levels rise.
Communications
We are at the cusp of a revolution in the use of AI-enabled communications systems. Adaptive networks will efficiently tailor network
resources in high-traffic areas such as stadiums and shopping malls. Vehicles exchanging data with each other, the Cloud and
surrounding infrastructure will revolutionise traffic safety and increase the efficiency of transport. Dedicated short-range communication
and local cellular networks are creating new 5G exploitation paths for Vehicle to everything (V2X) communications. These use cases
require compound semiconductor-based RF and optical devices due to their ultra-reliable, low-latency and high-sensitivity performance,
enabling the rapid exchange of time-sensitive and safety-critical information for further processing and decision making. This data will be
critical in enabling the next generation of automated driving and intelligent mobility.
IQE Annual Report and Accounts 2023
19
Strategic Report Our strategy
Strategic progress
Maintain and grow IQE’s position
Connect
Description
IQE has a long legacy in wireless technology, in applications ranging from
smartphones to 5G infrastructure. We are committed to enabling the smart
connected devices of the future and seamlessly aiding real time data exchange,
enhancing efficiency and functionality.
Key objectives
• Protect existing business while diversifying customer base through the
establishment of strategic partnerships
• Leverage our technical leadership gained over decades of manufacturing
leading-edge epitaxy for front-end modules
Progress in 2023
• Partnership with Asia based foundry to supply Tier 1 Android smartphone OEMs
• Increased engagement with leading US wireless customers with sampling and
product qualification
• Launch of industry first 6” InP Laser Platform for AI and data centre applications
2024 objectives
• Increase share of GaAs HBT power amplifier business through penetration of
APAC market and Android ecosystem
• Leverage IQE’s leadership in GaN epitaxy to grow our presence in wireless
infrastructure and defence RF power application markets
• Launch of high-speed datacoms VCSEL foundry service for AI dataserver
prospect qualification
Sense
Description
Advanced sensing technologies utilise sophisticated methods to gather and
interpret data with precision, enabling applications in fields such as autonomous
vehicles, healthcare, 3D facial recognition, security and environmental monitoring
for enhanced decision-making and situational awareness. As a leader in cutting-
edge sensing technology, IQE is committed to maintaining technology leadership
in this market to serve an expanding list of new applications.
Key objectives
• Maintain our market-leading position in 3D Sensing
• Develop next-generation sensing products, focusing on larger wafer diameters
and long-wavelength technology
• Key engagements with partners who are integral to the LiDAR supply chain
Progress in 2023
• Multi-year strategic agreement with global Tier 1 consumer electronics OEM for
the development of next-generation 3D Sensing applications
• R&D partnerships with global market leaders for next-generation products
2024 objectives
• Secure new platform 3D Sensing design wins, enabled by a new generation of
IQE long-wavelength sensing materials
• Sample and qualify LiDAR VCSEL to automotive OEMs
• Secure partnerships with Tier 1 OEMs to scale 8” platforms
20
IQE Annual Report and Accounts 2023
IQE’s strategy is focused on maintaining share in existing markets while
diversifying into new growth areas. By collaborating with technology leaders
we will achieve sustainable growth in order to capture value.
Diversify
Power
Description
A critical element of IQE’s diversification strategy is to enter the power electronics
market, which is forecasted to experience large growth. Power market
applications span various industries including renewable energy systems, electric
vehicles, consumer electronics, data centres and industrial automation, playing a
crucial role in efficient energy conversion and control.
Key objectives
• Leverage longstanding Gallium Nitride (GaN) capability for RF applications
• Develop leading-edge GaN-based power products for voltages up to 650 volts
(E/D mode)
• Standardise and scale to ensure cost-effective volume manufacture
• Establish unique commercial engagements so that IQE products can enable
virtual vertical integration
• Engage with market leaders to create mutually beneficial agreements for
improved value capture in power electronics
Progress in 2023
• Installed new GaN Power capacity in UK and US
• Sampled multiple Tier 1 Power Electronics customers for 650 volt (E/D mode)
2024 objectives
• Sample and qualify 650 volt (E/D mode) product with multiple key
Tier 1 customers
• Expand GaN Power roadmap to 1200 volt GaN on Si for automotive market
Display
Description
The microLED revolution is poised to transform display technology by offering
unparalleled visual performance, enhanced energy efficiency, and compact form
factors across a spectrum of applications, from consumer electronics to
augmented reality. The display market is the second focus area of IQE’s
diversification strategy, and we have partnered with microLED technology customers
to ensure we are enabling the future of display.
Key objectives
• Partner with technology leaders to create mutually beneficial agreements that
enable value capture
• Create a full portfolio of materials solutions for high-performance red-green-
blue (RGB) displays
• Diverse product offerings that enable both pick and place and tri-colour
manufacturing
• Focus on large diameter substrates (greater than or equal to 200mm) for GaAs
and GaN-based products
Progress in 2023
• Demonstrated red and blue GaAs-based emitters on GaN and GaAs
• Continued product development against technology roadmaps in conjunction
with strategic industry partners
2024 objectives
• Launch 8” microLED reference wafer portfolio
• Sample and qualify with Tier 1 display panel manufacturers
IQE Annual Report and Accounts 2023
21
Strategic Report Key performance indicators
2023 performance
review
Financial highlights
Revenue
(£m)
8
7
1
7
6
1
4
5
1
0
4
1
5
1
1
Adjusted EBITDA*
(£m)
0
3
6
1
3
2
9
1
4
Adjusted net
cash/(debt)**
(£m)
2
)
6
1
(
)
6
(
)
5
1
(
)
2
(
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
Adjusted operating
profit/(loss)*
(£m)
5
)
5
(
)
6
(
)
4
(
)
0
2
(
Operating loss
(£m)
)
9
1
(
)
6
(
)
0
2
(
)
3
7
(
)
6
2
(
Cash capital
expenditure
(£m)
2
3
5
1
2
1
9
5
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
The nature and description of alternative performance measures are included in Note 5 on pages 124 to 126.
*
* * Adjusted net debt is defined on page 98.
** *
The nature of adjusted diluted EPS is referenced in Note 12 on page 131.
22
IQE Annual Report and Accounts 2023
We acknowledge that our success is reliant
upon not only on our financial performance,
but also achieving our operational and
social objectives.
Non-financial highlights
Adjusted diluted EPS
(£p)***
Gender diversity
Group level*
Safety course
completions
9
2
0
.
)
6
4
2
(
.
)
1
4
2
(
.
)
4
7
0
(
.
)
8
6
2
(
.
%
6
1
%
4
8
%
8
1
%
2
8
%
7
1
%
3
8
5
0
3
5
,
3
6
1
,
4
9
6
6
3
,
2019 2020 2021 2022 2023
2021
2022
2023
2021 2022 2023
Female
Male
Diluted EPS
(£p)
Total GHG emissions
(tCO2e)
Learning hours
completed
)
1
5
4
(
.
)
1
4
0
(
.
)
7
8
3
(
.
)
7
2
9
(
.
)
8
2
3
(
.
1
9
5
5
2
,
0
8
1
,
2
2
3
0
6
9
1
,
9
1
7
2
,
4
6
0
2
,
8
2
5
,
1
2019 2020 2021 2022 2023
2021 2022 2023
2021 2022 2023
*
Read more in our Responsible Business section from page 31.
IQE Annual Report and Accounts 2023
23
Strategic Report Financial review
“ Despite a difficult
macro environment,
the demand for
semiconductor
products
remains high”
Jutta Meier
Chief Financial Officer
The Group reports financial
performance in accordance with
International accounting
standards in conformity 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 UK adopted IFRS
GAAP performance measures
are set out in note 5 to the
financial statements.
Review of the year
The Group's trading in 2023 has
been significantly impacted by the
global semiconductor industry
downturn. The industry downturn
presented a temporary but
significant challenge to sales
volumes in Q1-Q3 2023 prior to a
gradual improvement in market
dynamics and customer demand
in Q4 2023. Market dynamics
and customer demand is
expected to continue to
improve throughout 2024.
24
IQE Annual Report and Accounts 2023
“ Despite a difficult
macro environment,
the demand for
semiconductor
products
remains high”
Group revenue of £115,252,000
(2022: £167,494,000) has
decreased by 31.2% and the Group
has reported an operating loss of
£25,779,000 (2022: £72,976,000).
During the year the Directors have
taken steps to strengthen the
Group’s balance sheet, including
the renewal of the Group’s
£27,300,000 ($35,000,000) multi-
currency revolving credit facility
provided by HSBC Bank plc and
the successful £31,099,000 equity
fundraise. These steps, combined
with a number of cost
rationalisation and cash
preservation actions implemented
by the Directors have provided
the Group with the necessary
liquidity to navigate the
semiconductor market downturn
and allow the Group to continue
investing in its growth and
diversification strategy.
Group revenue of £115,252,000
(2022: £167,494,000) has
decreased 31.2% on a reported
basis. The Group’s Photonics
business segment represents the
largest proportion of the Group’s
revenue accounting for 51.3%
(2022: 52.9%) of total wafer sales
with Wireless representing 46.7%
(2022: 45.4%) and CMOS++
representing 2.0% (2022: 1.7%).
Photonics wafer revenues
decreased 33.3% to £59,098,000
(2022: £88,637,000). The decrease
in photonics wafer revenues
primarily reflects the softness in
the handset market and a
slowdown in Asian telecoms
infrastructure programmes
partially offset by strong
performance in aerospace and
security markets for infrared-
related products.
Wireless wafer revenues
decreased 29.1% to £53,877,000
(2022: £76,016,000). The decrease
in wireless wafer revenues reflects
a decline in wireless GaAs
epiwafer sales and weakness in
GaN epiwafer sales for 5G
infrastructure. The reduction in
wireless GaAs epiwafer sales in
particular, has been impacted by
softness in the broader
smartphone handset market
and build-up of inventory in
supply chains.
Statutory gross profit decreased
from £26,383,000 to £2,328,000.
The decrease in gross profit
reflects the reduction in sales and
under-utilisation of capacity
experienced across the Group as
a result of the semiconductor
industry downturn.
Selling, general and administrative
(‘SG&A’) expenses have increased
in the year from £31,211,000 to
£32,486,000, excluding the
separately disclosed impairment
loss on intangible assets of £nil
(2022: £65,821,000) and the
impairment reversal of £1,808,000
(2022: £2,300,000 loss) related to a
small number of customer specific
receivables where the Group has
successfully cash collected
certain old outstanding trade
receivable balances. Adjusted
SG&A expenses, which exclude
adjustments for share based
payments, restructuring costs,
Chief Executive Officer recruitment
costs and Chief Financial Officer
severance and recruitment costs
have decreased from £26,780,000
to £26,167,000 (2.3%), primarily
reflecting a combination of labour
cost and discretionary expenditure
savings implemented as part of
actions to mitigate cost during
the year.
Revenue
£115m2022: £167m
Operating loss
£(26)m
2022: £(73)m
Adjusted EBITDA
£4m2022: £23m
Cost rationalisation actions
implemented during the year to
mitigate the semiconductor
industry downturn and reduction
in customer volumes and
revenues include a combination
of the optimisation of
manufacturing asset utilisation,
including idling reactors to reduce
cost and align capacity with lower
customer volumes, the
implementation of a Group-wide
restructuring programme and
associated reduction in
headcount and labour cost,
consolidation of the Group’s US
molecular beam epitaxy (‘MBE’)
manufacturing capacity and
closure of the Group’s
manufacturing facility in
Pennsylvania and the
implementation of a range of
discretionary expenditure savings
in areas including travel,
marketing, legal and professional.
As part of the cost rationalisation
and global footprint optimisation
plan restructuring costs totalling
£4,680,000 (2022: £4,152,000) have
been incurred relating to
redundancy costs associated with
the group-wide restructuring
programme and labour and site
decommissioning costs
associated with the closure of the
Group’s manufacturing facility in
Pennsylvania, USA. Other
significant infrequent costs
incurred in the year relate to the
new starter bonus, payable over
three years, for the Chief Executive
Officer and severance and
recruitment fees following the
departure of the former Chief
Financial Officer.
A reported operating loss of
£25,779,000 has been incurred
(2022: £72,976,000). The 2022
operating loss was significantly
impacted by the non-cash
impairment of goodwill of
£62,382,000. An adjusted
operating loss of £20,199,000 in
2023 compares to an adjusted
operating loss of £3,557,000 in
2022. The increase in the loss
principally reflects the
semiconductor industry downturn
experienced within 2023 and the
associated reduction in customer
volumes and revenue. The
segmental analysis in note 4
reflects the adjusted operating
IQE Annual Report and Accounts 2023
25
Strategic Report Financial review continued
margins for the primary segments
(before central corporate support
costs). Photonics adjusted
operating margins decreased from
12.6% in 2022 to a negative margin
of 16.9% in 2023 reflecting the
impact of the industry downturn
and significant under-utilisation of
capacity. Wireless adjusted
operating margins, despite volume
and revenue declines, increased
from 6.2% in 2022 to 8.6% in 2023,
primarily reflecting a combination
of a reduction in manufacturing
capacity and cost linked to the
closure of the Group’s Singapore
site in 2022, cessation of
manufacturing activities at the
Group’s Pennsylvania site in 2023
and the positive impact of certain
working capital actions that
resulted in the consumption of old
aged inventory and the cash
collection of certain previously
impaired trade receivables.
Finance costs of £3,032,000
(2022: £2,427,000) reflect £1,810,000
(2022: £1,099,000) of bank and other
interest costs and the interest
expense on lease liabilities of
£1,222,000 (2022: £1,328,000). Bank
and other interest costs principally
relate to the Group’s HSBC Bank plc
revolving credit and asset finance
facilities with the increase in interest
cost reflecting a combination of
higher levels of facility utilisation
and borrowing in H1 2023 and an
increase in the interest rate as both
the Bank of England Base Rate and
the Sterling Overnight Index
Average (‘SONIA’) interest rate
benchmarks have increased during
the year.
The tax charge of £567,000
(2022: £862,000 credit) consists of a
current tax charge of £1,112,000
(2022: £89,000) primarily relating to
taxable profits generated by the
Group’s Taiwanese operations and
a deferred tax credit of £545,000
(2022: £951,000). Deferred tax asset
recognition has been restricted in
the UK to £nil to reflect future
forecast profitability, an assessment
that includes the impact of market
softness in trading forecasts as a
result of the industry-wide
semiconductor downturn whilst US
deferred tax asset recognition has
been restricted to £nil to reflect
lower future forecast profitability
arising from a combination of
market softness, 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. The effective tax rate of
3.6% (2022: 1.1%) applicable to the
tax charge of £192,000
(2022: £798,000) on adjusted items
is less than the UK statutory tax rate
of 25% primarily due to the non-
recognition of deferred tax assets
for current year UK and US trading
losses which include the adjusted
Chief Executive Officer recruitment
costs, Chief Financial Officer
severance and recruitment costs,
Pennsylvania site closure costs and
Group-wide restructuring
programme costs.
The decrease in the loss for the year
to £29,378,000 (2022: £74,541,000)
principally reflects the impact of the
prior year goodwill impairment
charge of £62,382,000. At an
adjusted level, the loss for the year
has increased to £23,990,000
(2022: £5,920,000) reflecting a
combination of the adverse
underlying trading performance
noted above, the impact of
adjusted non-cash and other
non-operational items and the
acquisition, and subsequent
consolidation of the Group’s former
joint venture, Compound
Semiconductor Centre
Limited (‘CSC’).
On 22 September 2023, the Group
acquired the 50% equity
shareholdings of its joint venture
partner CSC taking control of the
company and increasing its equity
ownership to 100%. The acquisition
was for total cash consideration of
£2,979,000 deferred over a period
extending until 1 January 2029 and
will enable the Group to exploit
technology and commercial
relationships developed by CSC to
create high-volume manufacturing
and sales opportunities, directly
align CSC’s research and
development activities and
capabilities with the Group’s
strategy and take the necessary
steps to restructure CSC’s business
operation and consolidate its
activities within the Group.
Basic and diluted loss per share has
decreased from a loss per share of
9.27p to a loss per share of 3.28p in
the current year with adjusted basic
and diluted loss per share of 2.68p
(2022: 0.74p) reflecting the Group’s
loss at a statutory and adjusted
profit level.
Cash generated from operations
increased in the year to £10,074,000
(2022: £8,873,000) despite the
decline in trading performance and
profitability of the Group. The
increase in cash generated from
operations principally reflects
strong working capital
management, particularly in the
areas of inventory and trade
receivable management, which
combined have contributed to
positive working capital cash
inflows of £11,076,000. The Group has
continued to invest in growing
capacity to meet demand with
capital expenditure of £12,158,000
26
IQE Annual Report and Accounts 2023
(2022: £9,438,000) principally
focused in Taiwan, Newport and
Massachusetts to support future
growth opportunities, intangible
asset expenditure of £3,113,000
(2022: £4,699,000) 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 £2,852,000
(2022: £3,795,000).
The increase in cash generated
from operations, combined with
investing activity cash costs of
£17,960,000 (2022: £10,729,000) and
repayment of lease liabilities of
£4,787,000 (2022: £4,926,000), net of
the equity fund raise of £29,708,000
and net repayments of bank
borrowings of £18,431,000
(2022: £9,558,000 proceeds), have
combined to maintain a positive
cash position of £5,617,000
(2022: £11,620,000) and a decrease
in net debt (excluding lease
liabilities and derivative financial
instruments) from £15,248,000 to
£2,228,000 as at 31 December 2023.
Equity shareholder funds total
£169,785,000 (2022: £175,060,000)
with the movement from 2022
primarily reflecting the loss for the
year and funds raised within the
equity fund raise.
Jutta Meier
Chief Financial Officer
9 April 2024
Q&A
What attracted you
to IQE?
I was drawn to IQE as the
leader in compound
semiconductor technology, a
sector which is forecast for
huge growth in the coming
years. IQE’s products are vital
for a myriad of cutting-edge
technologies that touch nearly
every aspect of modern life,
from consumer electronics to
healthcare, and automotive.
Despite a difficult macro
environment, the demand for
semiconductor products
remains high, fuelled by
evolving consumer needs and
emerging technological
trends. The rapid pace of
innovation in the industry
means there is never a dull
moment; there's always a new
challenge to tackle or
opportunities to seize upon,
keeping me engaged
and motivated.
Joining IQE at such a pivotal
time presents an exciting
opportunity to be a part of the
Company’s transformative
journey and play an important
role in shaping the financial
direction of the business. As
CFO, I am excited to leverage
my expertise in financial
management and strategic
planning to drive sustainable
growth and deliver value to
both shareholders and
stakeholders alike.
IQE Annual Report and Accounts 2023
27
Strategic Report
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
Stakeholder engagement
Consistent
engagement
Engaging with our stakeholders is critically
important as we progress our strategic goals and
develop our future plans for continued success.
Our impact on, and engagement with, our key stakeholder groups is considered within the implementation
of our strategy, which is overseen by the Executive Leadership Team 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 IQE’s strategies for future 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 over
the past year.
How the Board has engaged with shareholders, the workforce and other stakeholders
Stakeholder
Stakeholder description
Material issues
How we engage
We provide the best advanced
compound semiconductor
materials solutions to our
customers, supported by
bespoke product offerings and
personalised customer support.
We have a wide and diverse
range of customers serving end
applications aligned with our
three core markets of Smart
Connected Devices, Automotive
and Industrial and
Communications Infrastructure
and Security.
• Consistently high-quality
products and
technical expertise
• High standard of
business conduct
• Continuous improvement
• Fair pricing
• Excellent ongoing
customer support
• Continuity of supply
Customers
Our employees are fundamental
to our business success and we
have a responsibility to support
their health, wellbeing and
development. A highly capable
and diverse workforce will also
enable us to better understand
our customers and markets. 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 success
of the business
• Consideration of their
health, safety
and wellbeing
• Working as part of an
equitable, inclusive and
diverse culture
• Clarity of expectation
on how recognition
and remuneration
structures align
with accountabilities
Employees
• The Executive Leadership
Team and other senior
management frequently host
and attend meetings with key
customers around the world,
both virtually and in person.
These meetings provide
management with meaningful
opportunities to understand
first hand, at a senior level of
the organisation, how we can
enhance our offering to
customers by understanding
their current and future needs.
• The CEO and other members
of the Executive Leadership
Team provide the Board with
feedback and trends from
these meetings.
• The Board engaged with a
broad range of employees
throughout the year from the
leadership conference to
informal site-based meetings.
The Board also considered
the output of the Group’s
people survey.
• The CEO hosts regular
all-employee Town halls and
site-based all-hands
meetings to proactively
engage with our people.
• We continue to promote our
‘Zero is possible’ health and
safety programme.
28
IQE Annual Report and Accounts 2023
Tom DaleEVP, General Counsel and Company Secretary
Stakeholder
Stakeholder description
Material issues
How we engage
• Current and future
• We actively engage with
financial performance
• Maximising opportunities
for growth
• Environmental, social and
governance issues
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.
Our investors and shareholders
are also key contributors in
the formation of our
sustainability agenda.
Investors and
Shareholders
Our supply chain plays a vital
role in supporting our products
and broader business strategy
and we recognise the value of
our partners and suppliers. To
meet the expectations of our
customers, we develop strong
working relationships with our
suppliers and look for our
suppliers to provide excellent,
consistent quality and added
value. Engaging with our supply
chain is also crucial in the
development and delivery of our
Net Zero commitment and
SBTi targets.
We believe that our technology
and products will benefit and
advance society and provide a
positive impact on the world’s
sustainability. We work hard to
ensure that we have a positive
impact on all those around us.
Partners and
Suppliers
Society
• Forecasting visibility
• Product quality
• Fair pricing
• Long-term partnerships
• Opportunities for
local investment
• Impact on local and
wider environmental and
social issues
shareholders throughout the
year to ensure they
understand the
performance of our
business. Our ongoing
programme includes
numerous shareholder
meetings and roadshows,
which are facilitated
alongside our full and half
year results.
• The Chair, Remuneration
Committee Chair, Chief
Executive Officer and Chief
Financial Officer all directly
engaged with a range of
shareholders on key topics
including the Group’s
financial performance,
strategy and Executive
Director Remuneration.
• Virtual meetings with
our largest shareholders
to understand their
priorities for the Group’s
sustainability agenda.
• The Board received regular
updates throughout the
year regarding industry-wide
supply chain challenges
and the ongoing work to
mitigate the impacts of
these challenges.
• Our Executive Leadership
Team and other senior
managers work closely with
our supply chain partners to
involve them in our planning
processes and alignment with
our strategy.
• We use market data and
insights to develop new
products which will bring
benefits to society.
• Our ESG Committee has
oversight of the Group’s
sustainability agenda and is
focused on developing the
Group’s approach to climate
change, amongst other things.
IQE Annual Report and Accounts 2023
29
Tom DaleEVP, General Counsel and Company SecretaryStrategic Report Stakeholder engagement continued
Section 172(1) statement
Engaging with our stakeholders
and acting in a way that promotes
the long-term success of the
Group, while considering 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 considers,
both individually and collectively,
that it has acted in a way that it
considers, 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
A. Consequences of any
decision in the long term
• Consideration of how IQE generates long-term value through
the development of our Business Model and Strategy
• Risk management
Page
Page 12
Page 50
B. Interests of employees
C. Fostering business
relationships with
suppliers, customers
and others
D. Impact of operations
on the community and
the environment
• Participation in Diversity, Equity and Inclusion planning for
Page 34
the business
• Promotion of employee wellbeing initiatives and
benefits awareness
• Participation in Town Halls and employee forums
• Sustainability
• Building strong relationships with customers and suppliers
Page 32
within the Group’s supply chain, which is essential for
achieving the Group’s long-term strategic goals
• Consideration of Environmental, Social and Governance
Page 40
improvement strategies
• Review of environmental performance, ISO 14001 Environmental
management system and emission reduction initiatives
• Sustainability
E. Maintaining high
standards 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
Page 33
F. Acting fairly between
members of the Company
• Shareholder engagement
• Investor information and the Annual General Meeting
Page 29
30
IQE Annual Report and Accounts 2023
Responsible business introduction
Responsible business
approach and priorities
Through 2023 and early 2024
we conducted a formal
materiality assessment to ensure
we prioritise the sustainability
issues with the greatest impact on
our business, communities and
the environment.
The materiality assessment was
developed through several steps
using a third party to ensure a
thorough approach. We initially
used a desktop survey as a
pre-assessment to determine the
key issues in current corporate
reporting. We used that initial
assessment as the basis for
engaging a range of stakeholders,
starting with interactive sessions
with our global leadership team,
site-based workshops and
interviews with our major
shareholders. We then used
feedback from our customers and
suppliers, through their own
corporate reporting and requests
or surveys to IQE, before reviewing
the combined feedback with our
Executive Leadership Team and
the ESG Committee.
A matrix of materiality impacts
Once identified, the material
issues were plotted on our
materiality matrix and assessed
against the level of business
impact and level of concern to
stakeholders. A copy of the final
materiality matrix is shown below.
We will prioritise our efforts against
the items towards the top right
hand corner of the matrix.
H
G
H
I
S
R
E
D
L
O
H
E
K
A
T
S
O
T
E
C
N
A
T
R
O
P
M
I
F
O
L
E
V
E
L
R
E
W
O
L
IMPORTANT
MATERIAL
PRIORITY
Cyber and data security
Employee’s mental
health and wellbeing
Responsible sourcing
13
18
17
5
Effective stakeholder
management
6
1
Reduction of energy usage
and greenhouse gases
9
Culture
Effective
health and
safety
management
12
10
Strong and effective
communication
3
Achieving
Net Zero
4
Waste reduction
and recycling
Employee
engagement
Zero tolerance approach to bribery and corruption
Diversity, Equity and Inclusion
8
16
2
7
14
Supply chain management and auditing
Employee training and development
Efficient use of resources
Engagement with
the communities in
which we operate
11
20
Whistleblowing
15
Human Rights and commitments to preventing Modern Slavery
19
Responsible approach to tax
LOWER
LEVEL OF BUSINESS IMPACT
HIGH
Environment
Social
Governance
IQE Annual Report and Accounts 2023
31
Strategic Report
Responsible business
Supply chain
A robust global supply chain is the backbone of our
operational excellence. We work closely with our
suppliers to enforce the highest standards to
ensure our people and communities are protected.
to cleaner manufacturing
methods, particularly for our bulk
gases, and we are working
diligently to ensure that in the
future our bulk gases will be
produced from processes that
generate zero emissions. At IQE
we see every day as an
opportunity to improve, and as a
company in the business of
innovation, we are working to build
an even better future.
+ Read more at www.iqep.com/
responsibility/supply-chain/
disruption from Gallium-related
raw material supply restrictions.
IQE continues to drive towards a
circular economy, in which more
waste is recycled and reused, and
our raw materials are
manufactured in the most
environmentally friendly manner.
In 2023 we continued to recycle
100% of all our Gallium Arsenide
(GaAs) and Indium Phosphide
(InP) wafer waste, converting it
back into high-purity raw
materials that feed directly back
into our supply chains.
As part of our SBTi commitment
to Net Zero, we are working
closely with our supply chain
partners supporting the transition
“IQE continues to drive towards a
circular economy, in which more
waste is recycled and reused, and our
raw materials are manufactured in
the most environmentally friendly
manner. In 2023 we continued to
recycle 100% of all our Gallium
Arsenide (GaAs) and Indium
Phosphide (InP) wafer waste.“
David Bishop
Head of Global Supply Chain
IQE’s responsible supply chain
management prioritises the
protection of both people and the
environment, reflecting our
ongoing commitment to doing
business in a responsible manner.
Our suppliers share this
commitment to ethical sourcing
practices and are key partners in
our journey to achieving our vision
and goals. We expect our supply
chain partners to uphold the
same high standards as IQE
leaders and employees, and
always to act in an ethical,
efficient and transparent manner
to safeguard the wellbeing of our
people and communities.
2023 supply chain review
Creating advanced products for
the world’s leading technology
companies brings its fair share of
complexities and challenges from
a supply chain perspective, and
2023 was no exception. After
navigating through high energy
pricing and stabilising supply
chains in light of the ongoing war
in Ukraine, we also witnessed the
trading tensions intensify when
China announced in July 2023 that
it would be restricting the export of
Gallium. Gallium is an essential
component in compound
semiconductor manufacturing,
with China producing over 80% of
the world’s low-purity Gallium.
Thankfully, our strategy to increase
the recycling of such materials
over the past few years means
that circa. 60% of the Gallium IQE
now consumes comes from
recycled sources, with the
overwhelming remainder being
sourced outside of China. This
ensured our IQE facilities
continued to operate without any
32
IQE Annual Report and Accounts 2023
David BishopHead of Global Supply Chain Anti-bribery and corruption
IQE maintains a zero-tolerance approach to
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.
The key principles we expect everyone to follow
include not offering or accepting bribes or
improper payments; not improperly influencing
any individual; and not participating in any kind of
corrupt business activity, either directly or through
a third party. Third-party agents and distributors
are subject to additional due diligence checks.
Trade compliance
We have policies and processes to ensure we do
business in accordance with all applicable trade
compliance laws. Our policies and processes are
standardised where possible and are regularly
audited by our specialist trade compliance team.
Inside information and share dealing
We take steps to ensure our compliance with the
obligations arising from the AIM Rules, Disclosure
and Transparency Rules (where applicable) and
the UK Market Abuse Regulations ('MAR') in relation
to the dissemination of inside information to the
market, which Includes our share dealing policy
and procedures.
We have adequate procedures to identify and
control access to inside information and, where
necessary, to ensure that it is promptly disclosed
to the market. We ensure that the Financial
Conduct Authority is notified of any delayed
disclosure on announcement of inside information
to the market. We maintain secure lists of anyone
who has access to inside information and ensure
that those working for us do the same. We ensure
that everyone on those lists is aware of and
acknowledges the legal and regulatory duties
required of them while on the list.
Whistleblowing
IQE offers staff a confidential reporting
mechanism, overseen by the Group’s General
Counsel and 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.
Intellectual property and confidentiality
Our intellectual property (IP) is an important asset
and key to our continued success. We have
comprehensive policies and procedures to
identify and protect our IP, whether that be
through registered or unregistered IP rights.
Maintaining confidentiality is ingrained 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.
We have established processes for the
negotiation and signing of all confidentiality
agreements and employees are able to access
our standard templates and training modules.
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 organisations 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
IQE Annual Report and Accounts 2023
33
Strategic Report Responsible business continued
Our people
“Our people are pivotal to our success and integral
to achieving our ambitious growth objectives;
therefore, we are committed to attracting,
developing, recognising, and retaining top talent
from diverse backgrounds worldwide.“
Gender diversity
Board level
2023
2022
56%
44%
71%
29%
Jutta Meier joined IQE’s Board on
Female
22 January 2024.
Male
Group level
2023
2022
83%
17%
82%
18%
Female
Male
Group-level recruitment
78%
22%
70%
30%
2023
2022
Female
Male
Diversity, Equity, Inclusion
and Belonging (DEIB)
IQE’s population is made up of
different races, genders,
ethnicities, backgrounds, religions
and beliefs across our global sites.
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.
A central part of our DEIB
commitment is our desire to
demonstrate inclusive leadership
and represent the diversity of our
organisation and the communities
where we live and work.
We recognise that gender diversity
remains an ongoing issue within
our industry; however, we are
committed to improving our
gender balance. We are
supporting our Talent Acquisition
Team to increase inclusion during
the hiring process, with the aim of
attracting, developing and
retaining STEM talent and securing
a more diverse pool of joiners.
We launched our Women’s
Network in 2023, a highly
anticipated employee resource
group. The network focuses on
sharing information, supporting
development, encouraging
leadership, strengthening
networks, uncovering opportunities
and championing success for
women across the IQE Group.
We continue to celebrate diversity
through our cultural celebration
calendar. Recognising the traditions
and celebrations that are important
to our employees acknowledges
and embraces the diversity of our
global team and fosters a positive
and communicative environment.
We published a series of employee
cultural traditions during the United
Nations World Day for Cultural
Diversity.
We are also aiming to build
strategic partnerships with diverse
organisations and networks who
share our commitment to DEIB
and can support us with our
evolving journey of effective and
sustainable transformation.
In 2023, we improved our Board
diversity with the hiring of Non-
Executive Directors who possess
differing gender, geographical
and industry backgrounds and
experiences. Our Board-level
gender diversity was also
improved in January 2024 when
Jutta Meier joined the Board as
CFO. In the same month, two
women joined our Senior
Leadership Team, namely the Vice
President of Government Affairs
and Director of Quality in Taiwan.
Employee wellbeing
IQE is focused on the physical and
mental health of our employees,
especially during a difficult year
for our workforce which saw a
headcount reduction. We routinely
promote wellbeing support
available through our employee
benefits platforms and undertake
benefits seminars to ensure our
leaders, people managers and
employees are aware of the
assistance available to them.
We continuously review our benefit
offerings to ensure our plans are
attractive and market competitive
for our employees and, where
possible, their families. In 2023 we
further enhanced our UK benefits
offering with the launch of an
electric car salary sacrifice
scheme as well as a free
mortgage brokering service for
employees and their families.
We continue with our Employee
Assistance Programmes (EAP)
which 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
34
IQE Annual Report and Accounts 2023
William ChinChief People Officer and aiding return to work. We also
trained a new cohort of Mental
Health First Aiders and continue
with regular health and safety
training to ensure up-to-date
safety procedures and processes
for our employees.
Communication and
engagement
In 2023 we continued our
engagement with Best Companies,
a leading employee engagement
specialist which delivers data and
insights to help bring about
positive change in the workplace.
We undertook our third formal
employee engagement survey
titled ‘b-Heard’, and were delighted
to receive an 83% response rate.
We achieved ‘One to Watch’ status
for the third year running, which
represents ‘Good’ levels of
workplace engagement, as well as
uncovering 3-, 2- and 1-Star
functions amongst our Group. The
b-Heard feedback encouraged us
to create action plans where areas
of improvement were identified.
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 status and to excel in
employee engagement.
Employee communications
platform
We launched our new
communications platform to
engage and energise our
employees. It brings community
and conversations into the
workplace. It is the place to ask
questions, share knowledge and
news. Our leaders and employees
alike utilise the functionality to talk,
share and generally engage with
each other which allows us to
maintain an all-important
social connection.
Empowering and supporting
our talent
IQE attracts the best and brightest
global talent. While we were unable
to offer employee pay increases
across the board in 2023, we
remain focused on 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.
Our Talent Development team will
continue to work with managers
and employees to effectively
identify, source and facilitate
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.
IQE continued investment in
leadership development with a
focus on engagement, emotional
intelligence and teamwork which
resulted in ten of our first-line
leaders graduating from a
ten-module programme in 2023.
The b-Heard survey supported our
focus to develop our people and
we continue to do so as we strive
to create engagement
opportunities for all.
Learning and Development
We upgraded our Learning
Management System (LMS) in
2023. The new upgrade included a
new interface, brand new features
and an upgraded user experience.
Our teams initiated high-potential
employees with the “9 Box”
evaluation and started
conversations and developing
action plans to develop our senior
leaders. Moreover, we enabled
employee mobility and training
through job rotation assignments.
We assigned two engineers from
Taiwan to Newport for training,
helping as able engineering
support for our Newport engineers.
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.
As a company with highly valued
intellectual property, we rolled out
three IP courses on our LMS to
improve the understanding of IP
for all IQE employees with the
desired outcome of better
identifying, protecting and
exploiting our valuable IP.
Early careers
Over the past year, IQE has
continued building relationships
with local schools, colleges and
universities, to provide education
and knowledge to students and
education leaders on the
semiconductor industry and
career offerings. In 2023, this
included welcoming PhD students
from the EPSRC Centre for Doctoral
Training (CDT) and Leeds
University, as well as holding a
Futures Day for local PhD students.
To bolster our talent pipeline, we
have also held work experience
opportunities, allowing students to
rotate around and gain exposure
to various IQE departments. This is
an important step in raising
awareness of STEM careers,
particularly for students from
diverse backgrounds, securing
hires and building robust
talent pipelines.
We continued investing in our
engineering apprentices, with four
more apprenticeship opportunities
given to local students.
2023 also saw us attend US and UK
careers fairs, which have been a
great success. We have continued
our partnership with a local
university in South Wales to create
content-specific courses to bridge
the skills gap.
Board engagement
Our Board members continued to
engage with staff through direct
dialogue to understand employee
views and to support the executive
team with its People agenda. They
participated in IQE’s Leadership
Conference through a panel
presentation and discussion,
and had informal interactions
with IQE leaders during the dinner
event. The Board also met twice
in 2023 to review the People
agenda and discussed employee
engagement and culture strategy,
leadership development and
employee retention.
IQE Annual Report and Accounts 2023
35
Strategic Report Responsible business continued
Communities
and social review
We take pride in reflecting on the meaningful impact IQE has had within our
communities. As stewards of social responsibility, we recognise the profound
importance of not only driving economic growth but also fostering positive
change and empowerment. All employees are encouraged to get involved
in activities that give back to their communities throughout the year.
Giving Something Back
All of IQE’s employees are entitled to one full or two half days volunteering leave annually. To support this at all
of our global sites, IQE’s Giving Something Back Committee was formed. We are focused on a global approach
to giving, but with local execution, making sure we are supporting the engagements and initiatives that mean
the most to our people and their communities.
Food bank donations
The Wafer Technology team in Milton
Keynes collected tinned food and other
non-perishables for both people and pets
alike to help a food bank in Milton Keynes.
Their donations made a difference to
local families facing difficult times.
Taiwan beach
clean up
IQE’s team in Taiwan participated in a
beach clean up in October as a way to
give back to their community and make a
difference. Fifteen employees and their
family members joined in the event. The
benefits of the beach clean up were felt
by all, and it was a great way to make the
beach a better place for everyone.
Angel Tree
IQE Massachusetts has participated in an
‘Angel Tree’ programme since 2021 for the
students at Edward F Leddy Preschool in
Taunton. In 2023 IQE dropped off $1,000 to
be distributed to deserving families in the
school community.
Trek26
In July a number of our employees took
part in Trek26, a 26-mile trek in the heart
of Brecon Beacons (Bannau Brycheiniog)
to fundraise for the Alzheimer’s Society.
The team averaged a time of around 10
hours to complete the trek and while
they had plenty of blisters and sore legs
to show for it, they managed to raise
over £4,300.
Pride in Pill
At our South Wales sites we collected toy
donations for Pride in Pill MBE, supporting
children in hospitals throughout Wales
and England. It was a successful initiative
which hopes to make hospital a more
pleasant experience for children over the
Christmas period.
Shoebox gifts
IQE Taiwan colleagues donated and
participated in the purchase and packing
of 22 shoebox gifts for children for
Christmas. We hope these gift boxes sent
blessings and warmth, as well as
wonderful memories to children in need.
36
IQE Annual Report and Accounts 2023
Intellectual property
Innovation portfolio aligned to market verticals
Smart connected
devices
Communications
infrastructure
Automotive
& Industrial
Comparison of Patent Valuation Distribution
Smart connected
devices
Communications
infrastructure
Automotive
& Industrial
7
8
9
6
1
6
7
3
6
7
6
4
4
3
6
2
3
3
7
2
Tech
Commercial
Legal
Citations
Overall
IQE
Competitor
The above graph shows a third-party comparison of the valuation
distributions of IQE’s patent portfolio and that of a competitor (pure play
epitaxy provider). IQE has higher valuations in all categories and is
significantly higher in technical differentiation and legal strength.
IQE’s technology is underpinned by
our intellectual property (IP)
portfolio. 2023 saw further
streamlining of this portfolio to
better match our strategic aims
and technology projects. We
have around 120 granted patents,
with 2023 yielding 17 new grants and
12 new patent applications. We
have many further applications
planned in the future, with our
portfolio development targeted to
support the Company’s future
growth ambitions.
Our patents cover the breadth of
our technology platforms and are
aligned to our market verticals:
Smart connected devices,
Communications infrastructure,
and Automotive and Industrial. Our
process know how, the secrets of
our trade which have been gained
through more than 30 years in
operation, enhances this work and
is closely protected by IQE.
We have rigorous internal
processes to identify and review
inventions in our teams. Due to this,
we are able to harvest these
inventions efficiently and 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.
2023 saw a record number of
innovation disclosures made to the
IP department. We are proud that
IQE was fourth in the list of top UK
companies filing patents in the H01L
technical classification
(semiconductor devices) at the end
of 2023.
“2023 saw a record
number of
innovation
disclosures.”
Victoria Yeomans
Head of IP
IQE Annual Report and Accounts 2023
37
Strategic Report Responsible business continued
Health and Safety review
During 2023 IQE’s Environment,
Health and Safety (EHS)
programmes focused on
continued improvement at pace
to ensure our systems and
processes are fit to support our
future growth ambitions.
There was a continued focus on
our Process Safety improvement
programmes, an area in which we
made solid progress in 2022.
During the year we held our first
internal Process Safety Awareness
Training course and this was a
step forward in embedding these
processes and methodologies,
and also increasing awareness
across the organisation.
In our journey to align our systems
and processes across the
business we attained an ISO 45001
certification in two more of our
sites, including a combined
certificate across our operations
in South Wales. Preparations are
well advanced to move towards
US certification of ISO 45001 during
2024. These advancements were
actively enabled by moving to a
centralised reporting structure for
HSE personnel on operational sites.
Drive to World Class
To drive the journey to World Class
performance, we focused on six
key pillars which are critical to
achieving our vision:
• Visible Leadership – increase
the visibility and engagement
of leadership to help develop
a positive culture
• Governance – implemented,
robust governance processes
for EHS
• 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
• Continuous Improvement –
Actively seek out best practices
internally and externally to drive
continuous improvement across
EHS. We will also regularly review
our existing processes to identify
opportunities for improvement.
2023 Performance
Near Miss/Opportunity
for Improvement Reports
2021 vs 2022 vs 2023
Positive conversations
trend
3lost time injuries
17all injuries
1,805
near miss reports/OFIs
2regulator reportable events
2021 477
2022 1,630
2023 1,805
2022 799
2023 4,383
38
IQE Annual Report and Accounts 2023
Health and safety performance
Zero Is Possible
Over the past two years we have
launched our ‘Zero is Possible’
cultural change programme. This
is our roadmap to achieving zero
injuries, safety events,
environmental events, breaches,
and any work-related ill health. It
involves targeted campaigns,
active engagement and
awareness raising across the
Group. Zero is Possible focuses on
deploying the Company’s HSE
strategy to ensure robust
foundations are in place alongside
building mindsets within teams
that performance improvement is
within reach. This is done by
engendering an open culture of
collective ownership, engagement,
respectful challenge and active
reporting. As we continue to
evolve the campaign in the
coming years, we will transition the
campaign to be “Zero Together”.
2023 safety performance
During 2023 we maintained focus
within the business on proactive
reporting of opportunities for
improvement and near miss
events. These “free lessons” allow
us to robustly act to remediate
any deficiencies before any
consequences are realised.
Additionally, we launched a new
proactive KPI focused on positive
conversations on HSE topics as
part of our cultural improvements.
The total number of these
conversations is recorded
although they are informal and
any outputs requiring further
action are captured as
opportunities for improvement.
Promoting positive conversations
with respectful challenge is a key
element in driving a culture of
openness and reporting in the
organisation. To achieve this,
education activities were
completed across the business at
senior management level and we
plan on expanding this throughout
the organisation in 2024.
In 2023 we recognised a 278%
increase in reporting of near miss
and opportunities for
improvement reports across the
business from the baseline year of
2021, with a further 10%
improvement year-on-year from
2022 to 2023. Following the
education programme relating to
positive conversations a 448%
increase was seen from the pilot
year in 2022 (799 to 4,383). This
represents a hugely positive step
in IQE’s environmental, health and
safety maturity journey.
Three of our colleagues suffered
lost time injuries during the year.
This was consistent with the
previous year, however, as an
organisation we still see this as
three too many incidents. All
affected employees were
supported following these events
and were able to return to work on
normal duties. Two of these
injuries were reportable to the
regulator after the injured
employee was unable to attend
work carrying out normal duties
for seven days. No action was
taken by the regulator.
The number of overall injuries fell
year-on-year from 20 to 17
(including those which led to lost
time). Within IQE we encourage
reporting of all injuries, no matter
how minor, in order that they can
be robustly investigated to
prevent re-occurrence. The
majority of the injuries reported
were minor and employees were
able to return to work on normal
duties during the same shift.
In March 2023, the Group’s
Massachusetts site experienced a
fire contained to its mass vacuum
2023 Safety performance
Lost Time Injuries
All Injuries (inc. LTIs)
Near Miss OFI
Average per site
room during the cleaning process
for a particle filter. The site was
evacuated and emergency
services called under the Group’s
emergency protocol. The Group
experienced significant damage
to the mass vacuum room which
has now been repaired and its
fully operational again.
During 2023, in addition to our
Taiwan and South Wales facilities,
our Milton Keynes facility achieved
certification to the internationally
recognised ISO 45001 health and
safety management standard,
along with our Silicon site in South
Wales. Work is well progressed to
ensure we are positioned to attain
certification across our US sites in
the near future.
Key approach in 2024
During 2024 EHS will remain
focused on continuing to deploy
our strategy for driving a positive
EHS culture from the top of the
organisation to the bottom.
Positive conversations will be a key
tool to achieve this objective
within the organisation,
encouraging focus on three
key questions:
1. Do we know what can
go wrong?
2. Do we know what barriers we
have to ensure that it doesn’t
go wrong?
3. Do we know that our barriers are
effective and working properly?
The focus on our process safety
improvement programme,
standardisation, centralisation
and preparing our sites and the
EHS systems to scale also remain
key elements.
2022
3
20
2022
1,630
163*
2023
3
17
2023
1,805
181
*
Two sites operated for ~six months each so classed as one site for averaging purposes.
IQE Annual Report and Accounts 2023
39
Strategic Report Responsible business continued
Environmental performance
2023 performance
Following our attainment of the
independently-verified ISO 14064
GHG emissions reduction
standard during 2021 and a
commitment to the Science Based
Targets Initiative (SBTi) made
during 2022, IQE’s ESG Committee
has actively been working to
ensure robust plans are in place
to facilitate our emissions
reduction journey. During 2023
work progressed on gathering
data relating to Scope 3
emissions. This included engaging
with our supply chain partners to,
where possible, gather data
relating to the impact of GHG
emissions from transport and
further processing. This activity will
allow us to develop commitments
to both near-term targets and to
comply with the SBTi and achieve
Net Zero by 2050. Key to SBTi
involvement is the Company
outlining how we will reduce
our emissions over a set time
period. These targets galvanise
the action required for significant
emissions reductions to be
achieved by 2030.
Pleasingly, the focus outlined
regarding reporting of
Opportunities for Improvement
and Near Misses across the
business had a further positive
effect on Environmental reporting
across our sites. The average
number of Environmental
Opportunities or Near Misses
reported increased in the past
year from 12.6 average per site to
13.3. All of these were remediated
and investigated to prevent
re-occurrence.
Emissions performance
There has been a 13.51% reduction
in absolute emissions for 2023
(five-year rolling average) in
comparison to 2021 baseline
(Scope/category 1 & 2). This is due
to a number of factors, most
notably with 2023 being the first
full year without our Singapore
and smaller Taiwanese sites
included in the calculation due to
their closure, along with the
scaling down of the Pennsylvania
facility’s operations. These
organisational consolidation
exercises resulted in a significant
drop in electricity and gas
consumption. Other elements
such as air travel witnessed
significant rises during 2023 as the
restrictions imposed as a result of
Emissions data
COVID-19 continued to be lifted
across the globe. These situations
will continue to be monitored to
ensure they remain controlled.
Certification
IQE successfully achieved
certification to the ISO
14064-1 standard for a third
consecutive year.
Inventory summary (mandatory ISO 14064 criteria) tCO2e
Category
(ISO 14064-1:2018)
Scopes
(ISO 14064-1:2006)
2022
Category 1: Direct emissions
Scope 1
3,334
2023
2,757
Category 2: Indirect emissions
from imported energy
(location-based method)
Category 3: Indirect emissions
from transportation
Category 4: Indirect emissions
from products used by
organisation
Category 5: Indirect emissions
associated with the use of
products from the organisation
Category 6: Indirect emissions
from other sources
Total direct emissions
Total indirect emissions
Total gross emissions
Category 1 direct removals
Purchased emission reductions
Total net emissions
Scope 2
16,751
15,068
Scope 3
1,083
968
Scope 3
Scope 3
Scope 3
1,012
811
0
0
3,334
18,845
22,180
0
0
0
0
2,757
16,847
19,603
0
0
22,180
19,603
Emissions Intensity (Operating revenue/gross tCO2e) (£m)
170.46
Total emissions
2023 Environmental performance
Environmental incidents (reportable)
Environmental incidents (not reportable)
NM/OFI environmental
Average per site
Waste generation summary
Total waste generation (tonnes)
Landfill (non-hazardous) to land
Recycled
Hazardous
Energy (incineration)
Total waste
2022
2023
1
2
126
12.6
2022
102
1,548
236
47
1,933
1
1
133
13.3
2023
54
1,670
266
25
2,015
40
IQE Annual Report and Accounts 2023
Water usage summary
Total water use (cubic metres)
Municipal supply
Recycled water
Purchased water
Total water used
Energy consumption summary
(kWh)
Gas
Electricity
2022
103,610
373
647
2023
133,516
0
608
104,630
134,124
2022
2023
17,788,539
9,260,578
50,015,055 49,858,608
0Environmental breaches
IQE Annual Report and Accounts 2023
41
Strategic Report TCFD Report
TCFD Report
Task Force on Climate-related Financial Disclosures
Statement for the year ended 31 December 2023.
Introduction
IQE has a unique opportunity to
contribute to global efforts
towards a sustainable future. Our
products will enable the transition
to clean energy, whether that be
through the use of renewable
energy, energy storage, efficient
power inverters or the many other
applications where compound
semiconductors offer better and
more efficient performance, and
will play a leading role in societal
changes in how we all live our
lives. At IQE we are enthusiastic
about the role we have to play in
the greener future and we are
embracing the environmental,
social and governance (‘ESG’)
considerations to running a
modern, diverse global business.
Throughout 2023 and early 2024
we conducted an ESG materiality
assessment with feedback from a
broad range of internal and
external stakeholders. More details
on the materiality assessment are
available on page 31. The
materiality assessment identified
that environment-related topics
are, generally speaking, of a lower
priority to IQE’s stakeholders with
the exception of the reduction of
energy usage and greenhouse
gases which was deemed to be a
priority. We have therefore used
the feedback from our materiality
assessment to determine that
climate-related disclosures
beyond Scope 1 and Scope 2
would be material and should be
included within this TCFD report.
excited by the journey ahead
as we seek to further align
with the recommendations
of the TCFD and our broader
ESG responsibilities.
Where we are not yet fully
consistent with the required
disclosure, we have explained why
and the steps we are intending to
take to address these areas in the
future and applicable timeframes
for doing so. In completing this
report, we have used the TCFD
guidance materials including the
TCFD Guidance on Metrics, Targets
and Transition Plans, and the TCFD
Guidance for All Sectors, to cover
the four pillars and their underlying
11 recommended climate-related
financial disclosures.
You will also note a number of
cross references through our TCFD
report to other sections in the
Annual Report where additional
relevant information is available.
Compliance Statement
IQE is registered on the AIM
segment of the London
Stock Exchange. We have
complied with the requirements
of The Companies (Strategic
Report) (Climate-related
Financial Disclosures) Regulations
2022 and reported on our
Climate-related Financial
Disclosures using the Task Force
on Climate-related Financial
Disclosures (‘TCFD’) framework.
The summary table on page 49
provides disclosure of our
consistency with the 11
Recommended Disclosures as
recommended by the TCFD.
We have structured our TCFD
report in line with the four TCFD
pillars: Governance, Strategy, Risk
Management, and Metrics
and Targets.
This is our first step towards
aligning with the
recommendations of the TCFD
and the following report sets out
our assessment of climate-related
risks and opportunities. We are
already well aligned to a number
of the recommendations and are
“We are excited about the positive
impact that our products can make in
the world, including the key role they
can play in reducing our energy
consumption. We are also committed
to reducing the impact of our
operations on the environment.”
Tom Dale
EVP, General Counsel and Company Secretary
42
IQE Annual Report and Accounts 2023
Tom DaleEVP, General Counsel and Company Secretary TCFD Pillar
Recommended Disclosure
Status
Disclosure
Locations
Governance: disclose the
organisation’s governance
around climate-related risks
and opportunities
Strategy: disclose the actual
and potential impacts
of climate-related risks
and opportunities on the
organisation’s businesses,
strategy, and financial
planning where such
information is material
Risk management: disclose
how the organisation identifies,
assesses and manages
climate-related risks
Metrics and targets: disclose
the metrics and targets used
to assess and manage relevant
climate-related risks and
opportunities where such
information is material
A. Describe the Board’s oversight of
climate-related risks and opportunities
B. Describe management’s role in assessing
and managing climate-related risks
and opportunities
A. Describe climate-related risks and
opportunities the organisation has identified
over the short, medium and long term
B. Describe the impact of climate-related risks
and opportunities on the organisation’s
businesses, strategy and financial planning
C. Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2ºC
or lower scenario
A. Describe the organisation’s processes for
identifying and assessing climate-related risks
B. Describe the organisation’s processes
for managing climate-related risks
C. Describe how processes for identifying,
assessing and managing climate-related risks
are integrated into the organisation’s overall
risk management
A. Disclose the metrics used by the organisation
to assess climate-related risks and
opportunities in line with its strategy and
risk management process
B. Disclose Scope 1, Scope 2 and, if appropriate,
Scope 3 greenhouse gas (GHG) emissions, and
the related risks
C. Describe the targets used by the organisation
to managed climate-related risks and
opportunities and performance against targets
Progress roadmap
Compliance Table
Disclosure Level:
Full consistency with recommended disclosure
Partial consistency with recommended disclosure
Page 44
Page 44
Page 45
Page 45
Page 48
Pages 48
Page 49
Page 49
Page 49
Page 49
Page 49
IQE Annual Report and Accounts 2023
43
Strategic Report
TCFD Report continued
Governance
Board’s oversight
of climate-related risks
and opportunities
IQE is committed to doing
business in an ethical and
transparent manner. In 2023, the
Board and its Committees have
been focused on three key areas
related to our ESG strategy, which
includes the climate and
environment aspects relevant to
this report, as set out below. The
Board has not historically
considered climate-related risks
as part of its wider strategy
development but has considered
the climate-related opportunities
as part of the five-year strategy
developed as part of the Group’s
Capital Markets Day in late 2022.
The Board intends to consider the
Group’s climate-related risks and
opportunities as the Group’s
strategy is reviewed in the
coming year.
The first area of focus has been in
understanding the ESG matters
that are most important to our
stakeholders. Under the Board’s
oversight, we undertook a
materiality assessment which
aggregated internal and external
input, from our employees to our
customers and our investors, to
identify the top issues. The
materiality assessment identified
that environment-related topics
are, generally speaking, of a lower
priority to IQE’s stakeholders with
the exception of the reduction of
energy usage and greenhouse
gases which was deemed to be a
priority. Please refer to page 31 for
further information on our
materiality matrix.
Second, the Board has worked
with management in the
development of our Scope 1,
Scope 2 and Scope 3 targets that
will be submitted to the Science
Based Targets initiative (‘SBTi’)
later this year. The Board is
committed to reducing the
Group’s emissions to at least the
expectations of the SBTi and we
look forward to updating you on
our progress in future reports.
Finally, the Board has been rightly
focused on this TCFD report, being
IQE’s first report under the
recommendations of the TFCD.
Role of management
The Executive Leadership Team
(‘ELT’) has established a Group
Risk Committee comprising
members of the ELT and other
key management stakeholders
within the business. The Group Risk
Committee considers climate-
related risks and opportunities as
part of its overall consideration of
the Group’s material risks and
opportunities through the Group
Risk Register, and reports to the
Audit & Risk Committee. See page
65 for further detail.
Americo Lemos, Chief Executive
Officer, is the Board Director with
ultimate responsibility for the
Group’s climate change-related
issues. Tom Dale, EVP, General
Counsel & Company Secretary, is
the ELT responsible member for
the delivery of IQE’s sustainability
strategy and also chairs the Group
Risk Committee. IQE has
established a management
working group which meets at
least quarterly and comprises the
EVP, General Counsel & Company
Secretary, Group HSE Director,
Chief People Officer and Head of
Global Supply Chain and other
stakeholders from across the
Group as required on specific
areas. The working group drives
the day-to-day actions for IQE’s
ESG agenda.
Just like the Board, management
has been focused in 2023 on
understanding and developing
IQE’s obligations under the
TCFD framework and in the
development of our emissions
targets for the SBTi. Climate-
related opportunities have
been considered as part
of the Group’s strategy and
management intends to more
fully integrate climate-related
risks in those discussions during
the coming year.
The Board believes that IQE has
made a positive start to its
TCFD reporting obligations and
looks forward to supporting
management in delivering strong
ESG performance aligned with our
broader business ambitions.
Role of the Board
and its Committees
The Board delegates the oversight
of certain aspects of the Group’s
ESG strategy to its Committees
and, where not all of the Board is
present at the Committee
meeting, the Board receives verbal
updates from the Committees at
the next Board meeting as part of
IQE’s overall governance
arrangements relating to ESG, as
summarised in the diagram on
page 45.
The ESG Committee monitors and
oversees the execution of IQE’s
sustainability strategy, and further
details on the ESG Committee can
be found on page 71. The
Committee provides strategic
guidance and scrutiny of
management’s assessment and
management of climate-related
risks and opportunities, and
reports to the Board following
each meeting of the Committee.
The Audit & Risk Committee
reviews the impact of climate
change when considering the
Group’s significant and emerging
risks. Please see page 65 for more
detail on the Audit & Risk
Committee and its activities
during 2023.
The Remuneration Committee
considered the applicability of
climate-related performance
objectives for the long-term
incentive awards made to
Executive Directors in 2023 and it
was agreed that these were not
currently appropriate
performance measures for the
Executive Directors. The
Remuneration Committee will
reconsider the applicability of
climate-related performance
measures in determining
performance measures for 2024.
Further information is provided in
the Remuneration Committee
Report on page 72.
44
IQE Annual Report and Accounts 2023
IQE’s governance structure – climate-related focus
IQE plc Board of Directors
Audit & Risk Committee
ESG Committee
Remuneration Committee
Group Risk Committee
ESG Working Group
Executive Leadership Team
Strategy
Identified climate-related risks
and opportunities
Climate-related risks and
opportunities could potentially
have a significant impact on our
business, both positive and
negative. Whilst we have not yet
conducted our climate change
scenario work (see page 48), we
have conducted an initial
management assessment of our
significant climate-related risks
and opportunities (see page 46)
where significance was based on
those items which could have a
significant influence on our
strategy over the short, medium
and long term. We have not yet
developed a monetary definition
for significance and intend to
begin our assessment for the
quantification of the financial
impact of climate-related risks
and opportunities as we complete
our climate change scenario work.
We then intend to further develop
our mitigation plans for the risks
and the actions to capitalise on
the opportunities so that these
can then be fully integrated into
our strategy and financial
reporting processes. This will also
help to inform our climate
scenario analysis which we intend
to complete in either 2024 or 2025.
We considered climate-related
risks and opportunities across the
short, medium and long term,
defined as:
• Short term – the period up to
2028: a five-year period aligns
with our short-term financial
planning and viability
assessment period
• Medium term – the period
up to 2033: up to 2033 is
chosen to align with industry
technology cycles
• Longer term – the period 2031 to
2050: aligns with our longer-
term Net Zero commitment
We intend to align the assessment
of the Group’s other risks and
opportunities, as set out on pages
49 to 54, with these time periods in
the coming year.
Management’s initial review of
climate-related risks and
opportunities in 2023 identified
those risks and opportunities
which could significantly impact
strategy and financial planning
across our operations and
business. We have considered
both transitional risks and physical
risks. Transitional risks are those
associated with changes in the
way markets operate and which
may result from legal or regulatory
changes or consumer habits as
we transition to a lower-carbon
economy. Physical risks are the
exposure of our assets or value
chain to physical hazards caused
by the effects of climate change.
The Group is well placed to
support our customers with the
impact of climate change and the
transition to a lower-carbon
economy due to the performance
and efficiency benefits provided
by compound semiconductors.
Risks to the Group’s operations
and assets are considered to
be emerging risks and will
continue to be assessed over
the coming years.
Impact of climate-related risks
and opportunities
Climate change continues to pose
significant challenges to the
environment. We are aware that
the transition to a lower-carbon
economy may entail changes to
policy, legal, technological or other
market changes which may cause
varying levels of financial and
reputational risks to IQE. The risks
and opportunities were
considered using the Group’s
existing risk governance
framework (see pages 49 to 54).
As part of our review of climate-
related risks and opportunities, we
have identified both transition and
physical risks to our business. It is
important to acknowledge that,
alongside these risks, that there
are significant opportunities for
the Group given the critical role
that compound semiconductors
have in the world’s transition to a
lower-carbon society (see page 21
for more).
The climate-related risks and
opportunities set out on pages 46
to 48 are those which we consider
to be the most relevant for us
at present.
IQE Annual Report and Accounts 2023
45
Strategic Report TCFD Report continued
TCFD
category
Acute/
Chronic
Physical risks
Risk
Risk description
Supply chain
distribution
(upstream and
downstream)
Potential financial
impact of disruption to
the supply of raw
materials and our
products due to: (i)
increased incidence
and severity of extreme
weather events; and
(ii) transition of
manufacturing
methods to
greener alternatives.
Business
interruption;
damage to
assets; and
harm to
our people
Potential financial
impact of damage to
and temporary closure
of IQE’s sites caused by
extreme weather.
Acute/
Chronic
Potential impact
Mitigating actions
Time
horizon
Metrics &
targets
Medium
to Long
Metrics:
We are working
to develop
appropriate
metrics and
targets.
IQE has reviewed the
resilience of its
supply chain during
2023 to limit
single-sourcing
where possible and
will continue to
expand this review
to include climate-
related risks.
Medium
to Long
IQE has business
continuity policies
and procedures
and appropriate
policies of insurance.
IQE will continue to
review the steps it
can take to minimise
the impacts of
extreme weather
and will integrate
climate-related risks
in our business
continuity plans.
Metrics:
Sites
particularly
prone to
extreme
weather
events.
Targets:
No worsening
of extreme
weather risk
assessments.
Financial: increased
price of raw materials,
particularly gases and
substrates procured
overseas and costs
of transportation
resulting in reduced
profit margins.
Supply Chain:
disruption in supply of
materials required for
production causes
interruptions and
delays to the fulfilment
of orders; delays to
our own production
of products and failure
to meet customer
expectations.
Financial: reduced
revenue due to
closure of sites and
disruption to
production; increased
repair and
maintenance costs;
increased insurance
premiums (potential
unavailability of
suitable insurance
cover); and reduced
revenue and
higher costs.
Operations: disruption
to production whilst
sites are damaged
or closed.
46
IQE Annual Report and Accounts 2023
Transitional risks
Risk
Risk description
Energy use
and climate
reporting
obligations
Potential financial and
reputational impact if
perceived by
stakeholders as failing
to meet climate
reporting expectations/
requirements or
reporting poor
performance against
climate commitments.
TCFD
category
Policy &
Legal/
Rep
Carbon taxes
and short
term carbon
offsetting
costs
Policy
&Legal
Potential financial
impact of: (i) current
and future potential
carbon taxes applied
to our operations
and supply chain;
and (ii) short-term
carbon offsetting.
Potential impact
Mitigating actions
Time
horizon
Metrics &
targets
Short to
Medium
IQE has engaged
external resources to
ensure that we have
good sight of
changes that may
impact the business.
Metrics:
Annual carbon
inventory in line
with SBTs GHG
emissions,
Scopes 1, 2 and
3 (IQE expects
to submit its
targets to the
SBTi in early
Q2 2024).
Targets:
2028 SBTs.
IQE has engaged
external re-sources
to ensure that we
have good sight of
changes that may
impact the business.
In addition, our
commitment to SBT
and Net Zero will
mitigate any
exposure to
carbon taxes.
Medium Metrics:
Annual carbon
inventory in line
with SBTs GHG
emissions,
Scopes 1, 2
and 3.
Targets:
2028 SBTs.
Financial: additional
costs due to increased
reporting
requirements and
stakeholder demands.
Loss of investor
confidence if seen to
be climate green
washing, impacting
access to capital.
Reputation: damage
to reputation and
stakeholder
confidence; and
restricted access to
market supply chains.
Financial: in-crease in
energy, water and
waste costs and other
associated operating
costs; indirect carbon
taxes passed through
the supply chain; and
increased crossborder
transportation costs.
In-creased costs may
required increased
prices, meaning
customers are less
willing to do business
with us, or reduce
profit margins.
Operations:
requirement for more
comprehensive
datasets and
assurance of
Scopes 1, 2 and 3
carbon emissions.
TCFD
category
Market,
Products
and
Services,
Resource
Efficiency
Opportunities
Opportunities
Opportunity description
Increased
demand for
products
enabling
improved
efficiency and
clean energy
Increased demand for
compound
semiconductors which
enable more efficient
applications, including
GaN-based power
semiconductors for
renewable energy,
energy storage,
efficient inverters and
other products
required to transition
the global economy to
clean energy.
Potential impact
Mitigating actions
Time
horizon
Metrics &
targets
N/A
Short to
medium
Financial: overall
revenue growth from
increased sales of
GaN-based products.
Operations:
decrease in Scope 3
GHG emissions.
Metrics:
Revenues from
GaN-based
products.
Targets:
This is not
disclosed due
to commercial
sensitivity.
IQE Annual Report and Accounts 2023
47
Strategic Report TCFD Report continued
Resilience of IQE’s strategy to
climate-related scenarios
The Group announced its five-
year strategy at the Capital
Markets Day in late 2022. The
Board does not consider there to
be any material climate-related
risks to the achievement of that
strategy and has considered the
opportunities available to the
Group which will support the
Group’s diversification into Power
and Display markets, as well as
the broader proliferation of
efficient compound
semiconductor devices.
The Group believes that its
operations are resilient against
potential impacts of climate risks
and that it is well placed to be
able to support our customers
with the impact of climate change
and the transition to a lower-
carbon economy. We will do this
through the performance and
efficiency benefits provided by
compound semiconductors. Risks
to the Group’s operations and
assets are considered to be
emerging risks and will continue
to be assessed over the
coming years.
With the support of our external
consultant, we intend to conduct
a rigorous and more detailed
qualitative Climate Scenario
Analysis in the coming years to
help to further develop our
understanding of climate-related
physical and transition risks and
opportunities in light of a range of
climate change scenarios, which
could impact our business in
the future.
We will work to determine the
appropriate methodology and
modelling tools to be used to
complete this exercise and note
that the approach may comprise
stakeholder engagement and the
prioritisation of climate-related
risks and opportunities which may
require deeper analysis via
quantitative modelling and
ultimately support our
understanding of the resilience
of our low-carbon transition
plan under different climate
change scenarios.
The outcomes from the Climate
Scenario Analysis will be
considered as part of our process
for the assessment of climate
change-related risks and will
support our future climate-related
financial planning.
Whilst the Group has not yet
conducted a rigorous qualitative
Climate Scenario Analysis, the
Group has used its existing risk
management processes to
identify the Group’s material
climate-related risks and
opportunities on the basis of
pragmatic scenarios aligned to a
2°C increase and a 4°C increase.
Under a 2°C increase the group
expects an increase in the pace of
change in the Group’s transitional
risks relating to energy use and
carbon taxes, in addition to an
acceleration in demand for the
Group’s products which contribute
to improved energy efficiency. This
results in the potential risks and
opportunities outlined on pages
46 and 47 and the impact to our
business strategy of relevant risks
is described within these tables.
Under a 4°C increase scenario, the
Group would expect adverse
weather events, such as tropical
cyclones, severe flooding events,
heatwaves and fires, that would
occur more often and cause more
significant disruption to the
Group’s supply chain and business
operations in the areas identified
in the risks and opportunities on
pages 46 and 47.
Whilst we have more work to do in
improving our qualitative Climate
Scenario Analysis and a deeper
analysis of the resilience of our
business model, the Group’s
currently considers that climate-
related risks and opportunities are
emerging and not currently
material to the achievement of
the Group’s strategy.
Risk management
Identifying and assessing
climate-related risks, and
integration with IQE’s overall
risk management
The Group understands the
importance of monitoring and
assessing its climate-related risks.
We have made good progress in
the adoption of our existing risk
management processes to
integrate our climate-related risks
within the Group’s risk reporting
processes. More detail on the
structure of the Group’s risk
management processes can be
found on pages 49 to 54.
This year, an ESG working group,
led by the General Counsel and
Company Secretary, was
established to drive the Group’s
TCFD agenda and the
development of our submission
for the SBTi. The working group
engaged in a number of workshop
sessions with the Group’s external
ESG advisers, Asesoria Group, to
understand the Group’s
requirements under the TCFD
recommendations and in the
development of our sustainability
strategy and targets. The ESG
group intends to work closely with
the ESG Committee and the Group
Risk Committee in the coming
year to further develop the
Group’s sustainability strategy
beyond TCFD and SBTi.
The ESG working group developed
an initial proposal for the Group’s
significant climate-related risks
and opportunities which were then
reviewed at the Group Risk
Committee in order to assess their
applicability and significance to
the Group. The Group Risk Register
was then updated with the
inclusion of those climate-related
risks and opportunities and the
Group Risk Register was provided
to and reviewed with the Audit &
Risk Committee. The Group’s
climate-related risks and
opportunities are outlined on
pages 46 to 47. We expect to
refine our reporting of climate-
related risks and opportunities as
we complete our climate change
scenario analysis referenced on
page 48.
48
IQE Annual Report and Accounts 2023
We intend to further develop our
processes for identifying and
assessing climate-related risks
and opportunities by developing
site-specific risk registers which
will align with the bottom-up
approach incorporated into the
Group’s risk management
processes. This was process
may result in the identification
of additional or revised
significant climate-related risks
and opportunities.
Managing climate-related risks
Our climate-related risks and
opportunities form part of the
Group’s risk management process
The Group intends to enhance its
assessment of climate-related risks
through quantitative analysis and
this will better allow the Group Risk
Committee to determine whether
the considerations are adequately
reflected in the Group’s strategy.
Climate-related risks and
opportunities will be reviewed by
the Group Risk Committee at each
meeting in 2024.
As we enhance our assessment
of climate-related risks on a
site-by-site basis, we will also aim
to develop more detailed mitigation
plans for each climate risk.
Metrics and targets
Our metrics and targets
In 2021 we made our commitment
to achieve Net Zero carbon
neutrality across our operations
by 2050 and we will be submitting
our Scope 1, Scope 2 and Scope 3
targets to the SBTi by the end of
May 2024. We will align our metrics
relating to the reduction in
greenhouse gas emissions (GHGs)
with our planned submission to
the SBTi and will be able to provide
specific metrics for our TCFD
report next year. Whilst we
currently monitor certain
mandatory categories of Scope 3
emissions as part of our IS0 14064
certification (see pages 40 and 41,
our SBTi submission will have
considered the 15 categories
required by the SBTi. We also
intend to supplement our GHG
reduction-based metrics with
metrics relating to our waste and
recycling, as well as a reduction in
our water usage. We will continue
to investigate additional metrics
and targets that would help us
monitor our climate-related risks
and opportunities. Of course,
whilst we currently report within
certain emissions categories
under Scopes 1, 2 and 3, we want
to ensure that our TCFD metrics
are aligned with our approved
SBTi commitments.
The risk and opportunities table
on pages 46 to 48 provides further
information on the metrics and
targets we have identified so far
and how these are relevant to the
tracking and mitigation of those
risks and opportunities.
Following the certification of our
SBTi targets and the development
of our specific metrics for TCFD
reporting, will use these targets for
managing the transitional
climate-related risks and the
activities required to set and meet
our targets, including our longer-
term ambition to be Net Zero by
2050. We will also develop our
reporting in future years to include
trend data to allow comparison of
our metrics against prior years.
Our approach to Scope 1, Scope
2 and Scope 3 GHGs
Direct GHG emissions are from
our manufacturing operations
through combustion of fuels (Scope
1) and purchased energy from the
grid (Scope 2). We also have
indirect GHG emissions throughout
the value chain because of our
purchase of materials to make our
products, and the use of our
products in semiconductor devices
around the world. We are
committed to working with our
partners to reduce our Scope 3
emissions and have begun
engagement with our supply chain
partners, upstream and
downstream, to better understand
our Scope 3 emissions.
We are actively addressing all three
Scopes and are engaging with our
partners to reduce the GHG
emissions arising, directly and
indirectly, from our business. Please
refer to pages 40 and 41 for our
GHG reporting for the 2023 calendar
year. We report our GHG emissions
according to the Greenhouse Gas
Protocol, published by the WBCSD
and the WRI.
IQE Annual Report and Accounts 2023
49
Strategic Report Risk management
Our approach and
appetite for risk
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
risks identified as principal or
emerging risks on a regular basis,
and the Audit & Risk Committee
reviews the Group’s financial
controls and systems that identify,
assess, manage and monitor
financial risks, and other internal
control and risk management
systems. Please see page 69 for
further information on the Group’s
review of its financial controls. 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
oversight and support from the
Audit & Risk Committee and the
Board, creates an effective
system for monitoring, planning
and developing a Group-wide
culture and approach to risk.
The Group Risk Committee
periodically reports to the Audit
& Risk Committee on the Group’s
principal risks and the mitigating
actions being taken to address
those risks.
In 2023, the Group integrated
processes for the identification,
evaluation and reporting of
climate-related risks and
opportunities, as set out in the
Task Force on Climate-related
Financial Disclosures statement on
pages 42 to 48. This is the Group’s
first assessment of its climate-
related risks and opportunities
and was conducted using a
top-down approach. We intend to
develop this process through 2024
to capture more granular and
Board
Reports to
Audit & Risk Committee
Works with
Group Risk Committee
Risk Reviews
• Regular reviews of Group’s principal risks
Risk Assurance
• Specialist functions setting policies and
performing reviews
Risk Register
• Group risk register maintained and reviewed by
Group Risk Committee
• Sites, business units and support functions provide
specific risk registers for review
Bottom-up reviews
Operating sites, business units, support functions, R&D
A
c
c
o
u
n
t
a
b
i
l
i
t
y
The Group continues
to develop its risk
management
framework towards a
‘Three Lines of Defence’
model. The Group is
focused 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.
50
IQE Annual Report and Accounts 2023
site-specific risks and opportunities. The Group successfully integrated the review of climate-related risks and
opportunities within the Group Risk Committee and Audit & Risk Committee and key risks have been included
within the Group’s risk register.
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.
Principal risks and uncertainties
We have mapped the Group’s principal risks and uncertainties to a probability and impact matrix to assist
meaningful comparison of the relative importance of those principal risks and uncertainties. We have then
included arrows to indicate the change in the risk in comparison to the prior year’s assessment. We have used
the residual risk for the purposes of this mapping exercise, being the probability of the risk occurring and the
potential Impact it may have, taking into account any mitigating actions that will be implemented. The most
significant risks are shown in the top right quadrant of the chart.
7
1
Information
technology
2 Capital and
liquidity
Health, safety,
security and
environment
8 Business
environment
5
6
International trade
compliance
Intellectual
property
4 Loss of key people
3 Climate change
T
C
A
P
M
I
E
R
E
V
E
S
R
O
J
A
M
E
T
A
R
E
D
O
M
R
O
N
M
I
I
E
L
B
G
I
L
G
E
N
RARE
UNLIKELY
POSSIBLE
LIKELY
ALMOST CERTAIN
PROBABILITY
IQE Annual Report and Accounts 2023
51
Strategic Report Risk management continued
1 Health, Safety, Security and Environment
Context
Risk
Possible impact
Mitigation
The Group operates a number of manufacturing sites which utilise potentially harmful
gases, materials and equipment
• Major incident at an IQE site
• Injuries and potential loss of life
• Environmental harm
• Loss or suspension of required permits
• Disruption to operations and business activities
• Reputational damage
• Health and safety strategy aligned with the business’ cultural development
• Strong internal controls, including technical and engineering controls
• Focus on process safety, barrier management and layered protection
• Continuous improvement of management systems
• Continuous auditing and monitoring of productions processes and equipment
Change in the year
• No change
2 Capital and liquidity
Context
Risk
Possible impact
The Group has been exposed to the semiconductor industry-wide downturn and
inventory correction cycle through late 2022, 2023 and into 2024.
• Insufficient liquidity for day-to-day or to support the execution of IQE’s strategy
• Damage to business operations
• Breach of banking covenants
• Financial loss
• Reputational damage
Mitigation
• Five year plan with scenario modelling
• Annual Group and departmental budgets to define the envelope of affordability and
direct the capital management and liquidity management strategy of the business
• Monthly cash flow forecasts
• Budgetary, expenditure and cost controls
• Procurement policy
• Delegated authority policy and limits
Change in the year
• No change
3 Climate change
Context
Risk
Climate change generates both risks and opportunities for IQE and is an emerging risk
area for the Group.
• The Group has physical risks relating to the disruption of our supply chains and
business operations from extreme weather events and transitional risks relating
to the failure to meet our climate reporting obligations and increased energy-
related costs
Possible impact
• Disruption to the Group’s operations
• Disruption to the operations of our customers and suppliers
• Increased production and transportation costs
• Reputational damage or loss of investment from failure to meet
climate-change commitments
Mitigation
• Assessment of risks at a Group and individual site level
• Assessment of the Group’s baseline emissions
• Implementation of climate-related considerations in strategy and operational
business decision making
• Prioritisation of climate-related strategy to stakeholder priorities identified in
materiality assessment
Change in the year
• New risk
52
IQE Annual Report and Accounts 2023
4 Loss of key people
Context
Risk
IQE’s people are fundamental to its future success and there are a number of
individuals in key roles. The Group operates in a highly competitive Industry for talent
• Loss of key human capital capabilities
• Inability to attract talent
Possible impact
• Degradation in workforce output, from product quality to technology development
• Wage inflation
Mitigation
• Regular workforce planning including talent reviews
• People development and retention plans
• Compensation to market reviews
• Development of diverse workforce
Change in the year
• No change
5 International trade compliance
Context
Risk
Possible impact
Mitigation
IQE operates across multiple jurisdictions in a highly regulated industry impacted by
extra-jurisdictional controls on products, software and technology
• Failure to comply with international export control laws
• Significant regulatory fines and penalties
• Financial loss
• Damage to reputation
• Implementation of Group-wide technology control plan
• Employee training
• Group-wide policies and processes to identify end use and end user
• Development of products and technology that are not impacted by international
export controls
Change in the year
• Increase in probability
6 Intellectual property
Context
Risk
Possible impact
The semiconductor industry is highly competitive with competing intellectual property
rights in the major jurisdictions
• IQE infringes the intellectual property rights of a third party
• A third party infringes, or without authorisation obtains, IQE’s intellectual
property rights
• Loss of competitive position
• Financial loss
• Significant legal costs
• Reputational damage
Mitigation
• Implementation of robust terms and conditions to protect IQE’s intellectual
property rights
• Employee training on intellectual property rights and protecting
confidential information
• Implementation of intellectual property strategies aligned to the Group’s
business strategy
Change in the year
• No change
Key:
Likelihood
Low
Medium High
Trend
Increased risk
Decreased risk
No change to risk
New risk
Impact
Low
Medium High
IQE Annual Report and Accounts 2023
53
Strategic Report
Risk management continued
7 Information technology
Context
Risk
The Group primarily functions using its information technology systems
• Cyber attack on the Group’s IT infrastructure
• Ransom-ware/spread of viruses or malware
• Legacy system failure or cessation
Possible impact
• System failure, data loss and sustained disruption to production operations
• Loss of business-critical data
• Financial and reputational damage
Mitigation
• Technical protection through active scanning and monitoring of the Group’s internal
and external network
• User training to improve cyber security knowledge
• Periodic testing
• Upgrading of aged IT infrastructure and devices
• Network separation
Change in the year
• No change
8 Business environment
Context
Risk
Demand from the Group’s current and future customer bases may be reduced if there
is a contraction in investment, continued upward pressure on global inflation, changes
in expected customer demand and/or disruption due to the geopolitical environment
• Lower demand for the Group’s products
• Increases in key cost drivers such as people, energy and raw materials
• Disruption in the supply of raw materials and other production inputs
• Undermining of IQE’s strategy
Possible impact
• Decrease in sales volumes
• Increased cost of production leading to a reduction in margins if not offset by
sufficient price increases
• Failure to achieve longer-term business targets
Mitigation
• Proactive management of inflationary pressures through cost control and customer
management
• Strategic focus on key growth markets
• Product, market and customer diversification
Change in the year
• No change
Global conflict
The ongoing conflicts between Russia and Ukraine and in Gaza are demonstrative of the increasingly
contested geopolitical environment. IQE has been, and will continue to be, impacted by higher energy prices
which are, in part, a result of the conflict between Russia and Ukraine. The Group has not been materially
impacted by the conflict in Gaza but continues to monitor the impact of the ongoing conflict. Higher inflation
and the higher nominal interest rates used by national governments to combat inflation are expected to
have an impact on IQE consistent with the effects felt globally.
Key:
Likelihood
Low
Medium High
Trend
Increased risk
Decreased risk
No change to risk
New risk
Impact
Low
Medium High
54
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
55
Strategic Report Viability statement
Long-term viability
Viability statement
As required by provision 31 of the
UK Corporate Governance Code
2018, the Board has assessed the
prospects of the Company over a
five-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 50 to 54).
The Board believes that a five-
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
five-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 strategy,
funding arrangements and ability
to raise new finance in most
market conditions if required and
includes the Board’s view that the
Group will be able to renew or
refinance its existing £27,300,000
($35,000,000) revolving credit
facility agreement which expires in
May 2026.
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.
Whilst all of the risks identified on
pages 50 to 54 of this Annual
Report could have an impact on
the Group’s performance, in
making this assessment, the
Directors have considered the
following issues which could
threaten the business model,
future performance, solvency and
liquidity of the Group and which,
given the magnitude of their
potential impact, the Board
considers appropriate for the
purposes of this assessment:
• The current semiconductor
industry downturn and
economic outlook, which the
Directors’ believe continues to
present a temporary challenge
to the business during a period
when market dynamics and
customer demand is expected
to improve ahead of a full
market recovery in 2025.
• A material degradation in the
Group’s business environment.
The Group has experienced
weaker customer demand and
lower customer orders in 2023 as
a result of the semiconductor
industry downturn which has
resulted in a 31% decline in
reported revenue, a loss for the
year of £29,378,000 and a net debt
position (excluding lease liabilities
and fair value gains/losses on
derivative instruments) of
£2,228,000. In order to mitigate the
impact of the semiconductor
industry downturn and ensure IQE
continues to be well positioned to
exploit opportunities within an
industry that is forecast to
continue to grow in accordance
with strong historical long-term
industry trends, the Directors’ have
taken steps to strengthen the
balance sheet of the business
during 2023. These steps have
included the refinancing of the
Group’s £27,300,000 ($35,000,000)
multi-currency revolving credit
facility and the successful
£31,099,000 equity fundraise,
actions implemented to provide
the Group with the necessary
liquidity to continue trading during
the semiconductor market
downturn, provide sufficient
headroom to protect against a
later than forecast recovery from
the market downturn and to
allow the Group to continue to
invest in its growth and
diversification strategy.
Alongside the steps taken to
strengthen the balance sheet the
Group has also taken a number of
actions to rationalise cost in order
to help create sufficient funding
headroom to maintain
appropriate investment and
delivery of the Group’s strategic
priorities, including a combination
of the ongoing strategic
consolidation of the Group’s
manufacturing sites, capital
investment in gallium nitride
(GaN) manufacturing capacity
and investment in next-generation
compound semiconductor
research and development.
Cost rationalisation has primarily
focused on labour savings,
operational efficiencies and
reductions in areas of
discretionary expenditure across
the Group whilst the completed
closure of the Group’s Singapore
facility and the announced closure
of the Pennsylvania (US) facility,
with the resultant consolidation of
molecular beam epitaxy (MBE)
capacity into the Group’s North
56
IQE Annual Report and Accounts 2023
Group’s committed investment
into new GaN manufacturing
capacity. The Board believes
funding for this capital
expenditure can be raised from a
variety of sources. Over the period
to 2028, a reverse stress test
demonstrates that in the event
that operational cash flows or
funding for investment in new
capacity beyond the going
concern review period to 30 June
2025 is not available, forecast
revenue generated from existing
manufacturing capacity could
fall by 30% before a typical
leverage covenant test of 3x
would be breached.
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 five-year
period to 31 December 2028.
This Strategic Report has
been approved by the
Board and signed on their
behalf by:
Phil Smith
Chairman
9 April 2024
Carolina (US) site, will deliver
improved production efficiency
and margins in the medium to
long term. Capital investment in
manufacturing capacity at the
Group’s sites in Newport (UK),
Massachusetts (US) and Hsinchu
(Taiwan), combined with the
previously announced ongoing
capital investment in GaN related
manufacturing capabilities,
provides capacity for growth that
is aligned with the Group’s
strategy and its technology and
product roadmap. This ongoing
investment in GaN capability will
underpin the Group’s
diversification into advanced
displays and power electronics
segments of the compound
semiconductor market.
Stress tests and scenario analyses
to determine the Group’s viability
have been performed as part of
the assessment. The assessment
takes account of the actions
implemented by the Directors to
strengthen the balance sheet of
the business during 2023 and to
rationalise cost. In performing
these tests, the Group considered
a severe but plausible downside
scenario in which the Group’s
business performance is adversely
affected by a slower recovery in
the broader semiconductor
industry aligned with its going
concern review and a reverse
stress test extended over the
longer five-year plan period. The
Board have signed off on a
five-year plan to grow and
diversify revenues over the
five-year period. This growth will
be generated from a combination
of the Group’s existing
manufacturing capacity and the
IQE Annual Report and Accounts 2023
57
Strategic Report
Board of Directors
Leading the way
Phil Smith CBE,
FREng, FIET (66)
Chairman
Americo Lemos
(56)
Chief Executive
Officer
Jutta Meier
(58)
Chief Financial
Officer
Carol Chesney FCA
(61)
Senior Independent
Director
Dr Drew Nelson OBE,
BSc, PhD, FREng (69)
President and
Non-Executive
Director
E
N
R
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.
Phil is the Chairman of
IQE as well as an adviser,
mentor and speaker. As
former Chief Executive
and Chairman of Cisco
UK and Ireland, Phil is
passionate about
innovation, skills,
technology, digitisation
and leadership. Phil is
also the Chairman of
Streeva, a Fintech-
based growing
payments company,
and Chairman of
Appyway which is
leading on smart
mobility In the broader
innovation and skills
space. Phil is also the
former Chair of Innovate
UK, the Government’s
innovation agency as
well as former Chair of
Techskills , an employer-
led organisation
championing digital
skills. In his industry and
government roles he is
co-Chair of the Digital
Skills Council and is on
the board of the Digital
Economy Council.
Additionally, Phil also sits
on a number of advisory
boards in organisations
as diverse as Coventry
University and the
National Theatre.
Americo Lemos
joined IQE as Chief
Executive Officer in
January 2022.
Jutta Meier joined
IQE as Chief
Financial Officer
in January 2024.
Jutta is an experienced
finance executive
who has held senior
positions at global
semiconductor
companies for over
25 years. She joined IQE
in January 2024 from
Intel Corporation, where
she served as a Senior
Finance Director at Intel
Foundry Services,
supporting Intel’s
Foundry business
transformation.
Prior to joining Intel,
Jutta served as Vice
President of Finance
at GlobalFoundries
Inc, a global leader
in semiconductor
manufacturing and
she also held various
positions at Advanced
Micro Devices Inc.
(AMD), a multinational
semiconductor
company. She holds an
MBA from Technische
Universität Dresden.
Americo Lemos joined
IQE from the executive
team at
GlobalFoundries (GF),
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,
Americo 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.
Americo holds a Master
of Sciences, Electronics
and Computers degree
from École Nationale
Supérieure de Sciences
Appliquées et de
Technologie (ENSSAT) in
Lannion, France.
A
R
N
E
Carol Chesney
joined IQE’s Board in
May 2019 and was
appointed as Senior
Independent Director
in November 2020.
Since October 2012,
Carol 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 Carol 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, Carol’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.
Carol is a Fellow of the
Institute of Chartered
Accountants in England
and Wales, and
qualified with Arthur
Andersen in the UK.
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,
Drew 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 September 2021.
Drew 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.
58
IQE Annual Report and Accounts 2023
Key for Committee membership
A
E
Audit & Risk Committee
R
Remuneration Committee
N
Nomination Committee
Environmental, Social & Governance Committee
Chair of Committee
Victoria Hull
(61)
Non-Executive
Director
Harmesh Suniara
(53)
Non-Executive
Director
Bami Bastani
(70)
Non-Executive
Director
Maria Marced
(69)
Non-Executive
Director
R
N
A
A
E
E
R
Maria Marced is a
highly experienced
executive within the
semiconductor sector.
She joined IQE’s Board
in January 2024 and is
also currently the
President of Taiwan
Semiconductor
Manufacturing
Company (“TSMC”)
Europe, a role she has
held for over 16 years.
Prior to that, Maria
held Senior Vice
President roles at
NXP Semiconductors
and spent 19 years
as Vice President
and EMEA General
Manager at Intel Corp.
Maria holds a PhD in
Telecommunications
Engineering from the
Polytechnic University
of Madrid.
Harmesh Suniara has
over 15 years’
experience of working
in investment
management, with a
particular focus on UK
small and mid-cap
equities including the
technology and life
sciences sectors.
He brings a wealth
of expertise in active
engagement with
companies that
Lombard Odier has
invested in, joining IQE’s
Board in June 2023.
Since 2017 he has
worked as a Portfolio
Manager at Lombard
Odier 1798 Volantis,
and prior to this he
was an Investment
Manager at Henderson
Volantis Capital and
Gartmore Investment
Management. Lombard
Odier 1798 Volantis is
a major shareholder
in IQE.
Bami Bastani has
a wealth of
experience in
the semiconductor
industry.
He joined IQE’s Board in
January 2024 after
spending seven years
at GlobalFoundries, first
as Senior VP and GM of
the Mobile & Wireless
Infrastructure Business
Unit and then as Senior
VP and Senior Advisor
to the CEO as well as
GlobalFoundries’ board
member at the Global
Semiconductor
Alliance (GSA). Prior to
GlobalFoundries Bami
held President, CEO and
Board member roles at
Meru Networks, Trident
Microsystems and
ANADIGICS. Bami brings
over 20 years of serving
on Boards of Directors
of public and private
companies. Dr Bastani
holds a PhD and a
Master of Science in
Solid State Electronics
from The Ohio State
University and a
Bachelor of Science
in Electrical Engineering
from University
of Arkansas.
Victoria Hull joined IQE
as a Non-Executive
Director in August 2021.
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.
She is an experienced
Non-Executive Director,
and is currently serving
NED Directorship and
Remuneration
Committee roles for
listed technology
companies including
Alphawave IP Group
and Network
International Holdings
plc. Victoria is also the
Senior Independent
Director for Ultra
Electronics Holdings plc.
Prior to these
appointments, Ms Hull
held an executive
directorship at
Invensys, now Schneider
Electric. Having worked
in a variety of
global companies
at Executive Committee
or Board level, she
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.
IQE Annual Report and Accounts 2023
59
Strategic Report
Corporate Governance
Chairman’s Governance
overview
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 am confident the Board’s
continued focus on these areas
will support IQE’s performance and
its position in the market, and will
enable it to grow and embrace its
opportunities as they arise.
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.
The year 2023 was challenging for
the global semiconductor industry
as inventory levels were reduced
to normalised levels and the
global economy was challenged
by higher interest rates, inflation
and conflict. Despite this, IQE
returned to growth in the second
half of 2023 and made significant
progress in its diversification
strategy which underpins the
five-year plan launched at the
Capital Markets Day on
9 November 2022. The Board is
well-placed to oversee the
delivery of IQE’s strategy.
Board changes in 2023 and
early 2024
I am delighted to welcome Jutta
Meier as the Group’s new Chief
Financial Officer. Jutta joined IQE
on 22 January 2024 from Intel
Foundry Services. Jutta brings
wide-ranging financial leadership
and semiconductor industry
experience to the Board and the
60
IQE Annual Report and Accounts 2023
“The Board is well-
placed to oversee
the delivery of
IQE’s strategy.”
Executive team at IQE. I was also
very pleased to welcome Harmesh
Suniara and later Bami Bastani
and Maria Marced to the IQE
Board, again significantly
enhancing the Board’s capability
and experience particularly within
the semiconductor industry. I
believe that the refreshed Board
composition will enhance the
Board’s oversight of the execution
of the Group’s strategic direction
and I look forward to working with
them over the coming years.
Finally, Sir Derek Jones KCB
stepped down from the Board as
Non-Executive Director on
31 December 2023. Derek joined
the Board in December 2017 and
had been an integral part of IQE’s
Board during this time.
Board evaluation
The Board has a well-established
process for undertaking an annual
review of the performance of the
Board, its Committees and the
Chair. This year, the Board
completed an internal evaluation.
More details on the findings from
the evaluation are outlined on
page 63.
I encourage all of our shareholders
to engage with us ahead of the
AGM which will be held on Tuesday
25 June 2024. Notice of, and
details of the arrangements for,
the AGM will be provided to
shareholders at the usual time.
I am confident that the steps we
have taken through 2023 will make
a strong positive contribution to
IQE as we drive to achieve the
vision and goals we have set.
Phil Smith
Chairman
9 April 2024
IQE Annual Report and Accounts 2023
61
Corporate Governance Corporate Governance continued
Governance structure
Shareholders
IQE Board
Audit & Risk
Committee
Nominations
Committee
Remuneration
Committee
ESG Committee
Responsibilities:
• Reviewing
financial
reporting and
disclosures
• Reviewing audit
effectiveness
• Assessing internal
controls and risk
management
• Advising on
external auditor
Responsibilities:
• Review
composition of
the Board
• Succession
planning for the
Board and senior
management
• Review
developments in
corporate
governance
l
D
e
e
g
a
t
i
o
n
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
A
c
c
o
u
n
t
a
b
i
l
i
t
y
+ See page 65
+ See page 70
+ See page 72
+ See page 71
Chief Executive Officer
Executive Leadership Team
Operating Sites
Business Units
Functions
Research &
Development
Role of the Board
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 to the Chief
Executive Officer and the Executive
Leadership Team.
The primary tasks of the Board in
2023 included:
Strategy
• Assessed progress against the
Group’s strategy for the period
to 2027
• Regular reviews of key business
decisions and their impact on
the Group’s strategy
Operations
• Regularly received operational,
including health, safety and
environment, updates at
scheduled meetings
• Monitored performance and
provided challenge in key areas
of operations
Leadership and people
• Concluded search for a new
Chief Financial Officer
• Concluded search for two new
Non-Executive Directors
Finance
• Oversaw the Group’s £31m
equity raise and $35m
refinancing with HSBC
62
IQE Annual Report and Accounts 2023
Board and Committee attendance
Number of meetings in 2023
Attendance
Executive
Mr Americo Lemos
Mr Tim Pullen1
Non-Executive
Mr Phil Smith
Mrs Carol Chesney
Sir Derek Jones
Ms Victoria Hull
Dr Andrew Nelson
Mr Harmesh Suniara2
Other
Mr Neil Rummings3
Audit & Risk
Committee
Remuneration
Committee
Nominations
Committee
ESG
Committee
*
5
5
5
4
5
5
5
5
5
1
1
1
1
Board
18
18
11
18
18
18
15
17
6
7
* The Nominations Committee met on an informal basis throughout the year, often following the conclusion of Board meetings.
Not a member of the Committee or not required to attend meetings.
1. Tim Pullen left IQE on 6 June 2023.
2. Harmesh Suniara joined the Board on 30 June 2023.
3. Neil Rummings was Interim CFO from 6 June 2023 until 22 January 2024, when Jutta Meier joined as permanent CFO.
• Reviewed, approved and
monitored progress against
the financial plan for the 2023
financial year
• Monitored, challenged
and approved capital
expenditure (‘capex’)
• Approved the Annual Report,
half-year results and interim
trading updates
• Considered and approved
IQE’s going concern and
viability statements
Governance and ethics
• Carried out an internal
Board evaluation
• 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
Independence
The Board considers that, with the
exception of Andrew Nelson and
Harmesh Suniara, 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
judgement. Andrew Nelson was
appointed as President and
Non-Executive Director in 2021
following his transition from Chief
Executive Officer and Harmesh
Suniara was appointed as the
representative of Lombard Odier.
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 not 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 2023. The process
identified the following key areas
for action and attention:
• Refine Board KPIs on operational
and financial performance to
improve the Board’s visibility of
business performance and to
focus discussions on areas of
strategic importance
• Opportunity for greater
alignment between the Board’s
areas of focus and priorities of
the Executive Leadership Team
• Focus on identifying key talent
and succession plans
• More Board focus on the
organisation’s people strategy
and culture
• Improved summaries for the
Board and continued work on
Board papers.
IQE Annual Report and Accounts 2023
63
Corporate Governance Corporate Governance continued
UK Corporate Governance
Code compliance
IQE complied throughout 2023
with the principles and provisions
of the UK Corporate Governance
Code 2018 except in the
following areas:
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
policy, level and structure of
remuneration for senior
management. However actual
remuneration for senior
management and the Company
Secretary (noting that the
Company Secretary is part of the
Executive Leadership Team and
senior management) is set and
determined by the CEO in
consultation with the Group’s
Chief People Officer and
appropriate external advice
and benchmarking.
Provision 36
Share options granted to the
Executive Directors under IQE’s LTIP
are subject to total vesting and
holding periods of three years,
opposed to five 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 two
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.
IQE’s approach aligns with market
practice across IQE’s peer group
on AIM and the Remuneration
Committee considers the current
holding periods to be the right
balance between incentivising
Executive Directors and aligning
with the interests of the
Group’s stakeholders
A copy of the 2018 UK Corporate
Governance Code is available
at frc.org.uk.
64
IQE Annual Report and Accounts 2023
Audit & Risk Committee Report
Audit & Risk
Committee
Chair’s
introduction
“The Audit Committee continues to play a vital role in ensuring the
integrity of our financial statements, in reviewing the effectiveness of our
risk management processes and internal controls, and in evaluating the
performance of the external audit process.”
In addition to the Committee’s
structured meeting schedule, the
Committee’s work during the year
also focused on several key areas
of governance:
• The Group’s available financial
resources and the Group’s ability
to trade throughout the industry-
wide inventory correction cycle
• The Group’s financial controls and
addressed opportunities for
improvement with the
management team
• The integration of the Group’s
identification, evaluation and
reporting on climate-related risks
and opportunities.
Carol Chesney
Chair
9 April 2024
I am pleased to present the Report
of the Audit Committee, which
provides a summary of the
Committee’s role and activities
during the 2023 financial year. 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 and operational controls,
compliance and risk management.
The Committee works with IQE’s
internal finance function and external
auditors discussing, assessing and
challenging financial reporting and
going concern assessments. 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.
IQE Annual Report and Accounts 2023
65
Carol ChesneyChairCorporate Governance Meetings and attendance
The Audit & Risk Committee
meets at least quarterly, with
additional meetings as required.
There were five meetings in 2023
and all of the Committee
members (as at the date of the
meeting) attended each meeting,
with the exception of the meeting
on 14 December 2023 which
Victoria Hull was unable to attend
for personal reasons.
The meetings are also regularly
attended by the Chairman, Chief
Executive Officer, Chief Financial
Officer, EVP, General Counsel &
Company Secretary and other
senior members of the
finance team.
IQE’s external auditors attend
every 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. The Chair also holds at
least one separate meeting with
the audit partner ahead of each
Committee meeting.
Audit & Risk Committee Report continued
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 effectiveness
and independence 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
including the potential for asset
impairment and assessment of
viability and going concern
• 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
Membership
• Carol Chesney – Chair
• Victoria Hull
• Bami Bastani
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, including invited attendees
as necessary, has a mix of
experience and competencies to
assess the issues facing the Group
within the semiconductor industry.
Bami joined the Audit & Risk
Committee on 22 January 2024
following the retirement of Derek
Jones at the end of 2023.
66
IQE Annual Report and Accounts 2023
Activities during 2023
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 set out in its terms of reference, with additional focus areas in 2023 as set out on page 69.
The table below summarises the key activities at each meeting during 2023:
Agenda item
28 April
4 May
15 May
7 September
14 December
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
judgements
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 judgements
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
•
•
•
•
•
•
•
•
•
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 September
2023 and April 2024.
Through consideration of reports
from, and meetings with,
management and the external
auditors, the Committee has
reviewed and determined
the following:
• Judgemental areas and
significant matters relating to
the financial statements as set
out on pages 98 to 158.
• Whether the expected future
cash flows of IQE support the
carrying value of the Group’s
cash generating units, 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
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
• Whether the presentation of the
financial statements, including
the presentation of adjusted
performance measures, is
appropriate and balanced
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 cash
flow forecast together with
available funding headroom to
assess the appropriateness of the
going concern assumption.
IQE Annual Report and Accounts 2023
67
Corporate Governance Audit & Risk Committee Report continued
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:
• 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;
• Impairment review of cash
generating units and the
revenue growth rates and
discount factors applied in
business unit value in use
calculations that support the
carrying value of the Group’s
cash generating units;
• Intangible development cost
carrying values and associated
markets, end use applications
and customer demand for the
technologies which support
asset carrying values;
• Judgements associated with the
application of the Group’s
accounting policies for its joint
venture, Compound
Semiconductor Centre Limited,
in the period prior to the
acquisition of the joint venture
(see note 32);
• Revenue recognition and any
judgements associated with
the satisfaction of performance
obligations for significant
transactions; and
• Presentation and disclosure of
adjusted performance
measures including appropriate
clarity of reconciliation
between each GAAP and
non-GAAP measure.
External Auditors
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 a policy on
the provision of non-audit services
by the external auditor in line with
the Financial Reporting Council’s
Revised Ethical Standard 2019.
The Group has a policy prohibiting
the use of the Group’s auditors
for the provision of non-audit
services other than an interim
half-year review.
The Audit & Risk Committee also
monitors the effectiveness of the
external 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 provides 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.
A resolution to reappoint KPMG will
be proposed at the forthcoming
Annual General Meeting.
KPMG LLP
Fees payable to the Company’s auditor and its associates for the audit of parent
company and consolidated financial statements
Additional fees payable in relation to the audit of the parent company and
consolidated financial statements for the year ended 31 December 2022
Fees payable to Company’s auditor and its associates for other services:
• The audit of the 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
2023
£’000
671
134
25
-
-
830
2023*
£’000
-
-
-
-
2022
£’000
547
-
20
-
-
567
2022
£’000
39
12
51
618
* A statutory audit was not required to be conducted in 2023 due to the closure of the Group’s Singapore site in 2022.
68
IQE Annual Report and Accounts 2023
Internal audit and controls
The Audit & Risk Committee
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 reports any
material exceptions to the Audit &
Risk Committee.
In the current year, the Group has
undertaken a review of its internal
financial control procedures. Given
the size of the Group, in some
locations there is limited
segregation of duties which is
considered a key internal control
in minimising the occurrence of
errors or fraud. As such, there have
been a greater number of
adjustments required to finalise
the external reporting than would
be ideal. During the year and as
part of the audit process, the Audit
Committee has relied on the
transparent dialogue between
financial reporting personnel, the
external auditors and members of
the Committee to understand the
derivation of adjustments and
how controls can be improved to
reduce the frequency of
adjustments. A resource
dedicated to updating the Group’s
understanding of controls and its
documentation was added to the
finance team during 2023 and the
Committee has had regular
reports on progress. The
Committee is pleased with the
output and will ensure the
recommended improvements are
embedded during 2024.
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.
Risk Management
The Group Risk Committee
identifies, reviews, assesses and
tracks 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 50. 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
51 to 54. 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.
The Audit & Risk Committee will
also be working closely with IQE’s
ESG Committee and IQE staff to
understand, assess and mitigate
climate-related risks.
Anti-bribery and corruption
IQE maintains a zero-tolerance
approach to 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 and
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.
IQE Annual Report and Accounts 2023
69
Corporate Governance Nominations Committee Report
Nominations
Committee
Chair’s
introduction
“The Nominations Committee is committed to finding and hiring the best
talent globally. Our world-class Board will play a critical role in ensuring IQE
achieves its long-term vision, thanks to the industry knowledge, technical
experience and broader skills of our leadership group.”
Membership
• Phil Smith – Chair
• Carol Chesney
• Victoria Hull
Meetings and attendance
The Committee meets regularly
on an ad hoc basis, often following
the conclusion of scheduled Board
meetings. All members attended
each meeting.
Phil Smith
Committee Chair
9 April 2024
Phil Smith became Chair of the
Nominations Committee in
January 2021 and has overseen a
number of changes to IQE’s Board
since his appointment.
In 2023 the Committee worked
with the Chief Executive Officer
and Chief People Officer in the
search for a new Chief Financial
Officer, with Jutta Meier joining the
Group on 22 January 2024. Jutta is
a seasoned financial professional
with many years’ experience
within the semiconductor industry
and I am looking forward to the
experience she will bring to IQE.
The Committee was also
successful in its search for new
Non-Executive Directors who
would add international and
semiconductor experience to the
Board. The search led to the
appointment of Maria Marced and
Bami Bastani, two industry
veterans, who bring a wealth of
experience to the Board. I am
delighted to welcome both Maria
and Bami to the Board.
The Committee engaged Lygon
Group to assist with the search for
the new Chief Financial Officer
and Non-Executive Directors.
Role of the Committee
The Nominations Committee is
responsible for leading the
process for the selection and
appointment of Directors and for
ensuring plans are in place for an
orderly succession of Board and
senior management positions.
Key responsibilities
• 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
70
IQE Annual Report and Accounts 2023
Phil SmithChair ESG Committee Report
ESG
Committee
Chair’s
introduction
“IQE is deeply committed to responsible business practices and our ESG
Committee is driving our approach to Environmental, Social and Governance
matters. We are working to position IQE as a sustainability champion, through
both compliance and technology leadership, as compound semiconductor
products are vital to achieving to Net Zero. We are progressing on our journey
and want to demonstrate transparency whilst we work to embed ESG deeply
within our culture.”
The Environmental, Social and
Governance (ESG) Committee
was established on 24 January
2022 to enhance the Board’s
oversight of ESG matters. The ESG
Committee is responsible for
developing and monitoring the
execution of IQE’s sustainability
strategy and the communication
of IQE’s activities with our
stakeholders. The ESG Committee
is also responsible for monitoring
the Board’s engagement with IQE’s
people, with Victoria Hull and Bami
Bastani acting as the Board’s
workforce representatives.
The ESG Committee is working with
the Executive Leadership Team
and colleagues within IQE to
develop IQE’s sustainability
strategy. In 2023 and early 2024,
the Committee was focused in
supporting management with the
development of the Group’s first
report under the Task Force for
Climate-related Financial
Disclosures and in the
development of the Group’s
targets for the Science Based
Targets initiative, which the Group
committed to in May 2022.
In 2024, the Committee intends to
focus on driving momentum and
providing guidance in the
development of the Group’s
broader sustainability strategy
and its alignment with IQE’s
strategic objectives.
• 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
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.
Membership
• Phil Smith – Chair
• Drew Nelson
• Maria Marced
• Bami Bastani
Key responsibilities
• Ensure that IQE has a fit-for-
purpose ESG strategy and
drive 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
Meetings and attendance
The ESG Committee aims to meet
at least twice a year. In 2023 the
Committee met once to allow
management to focus on the
near-term objectives of reporting
under the TCFD and our SBTi
targets submission.
Phil Smith
Committee Chair
9 April 2024
IQE Annual Report and Accounts 2023
71
Phil SmithChairPhil SmithChairCorporate Governance Directors’ Remuneration Report
Remuneration
Committee
Chair’s
introduction
“Over the last 12 months the Company’s employees have responded positively
to the headwinds faced by IQE and the global semiconductor industry caused
by the slowdown in demand for semiconductors. The Company has continued
to make progress in terms of customer relationships, new strategic
partnerships and a focus on diversification into new markets and delivery
against longer-term financial goals.”
On behalf of the Board I present
the Remuneration Report for the
Company. Over the last 12 months
the Company’s employees have
responded positively to the
headwinds faced by IQE and the
global semiconductor industry
caused by the slowdown in
demand for semiconductors, and
has continued to make progress in
terms of customer relationships,
new strategic partnerships and a
focus on diversification into new
markets and delivery against
longer-term financial goals. As a
result, while IQE’s financial
performance was adversely
impacted by (largely) macro
environmental factors, the
Company remains well-positioned
for growth in 2024 and beyond.
2023 incentive awards
and outturns
During 2023, following the
downturn in global demand for
semiconductors, the Committee
reviewed the terms of the LTIPs
originally proposed to be granted
to the Executive Directors in 2023
in order to ensure that the awards
were appropriate in the
circumstances and focus
executive management on a
recovery in performance. The
Committee then consulted
extensively with the Company’s
principal shareholders on the
terms of the award to the Chief
Executive before making the grant
in December 2023. Having taken
account of the feedback received
during the consultation, Americo
Lemos was granted an award of
performance shares with a face
value of 200% of salary. This award
will only vest if stretching TSR goals
related to a recovery in IQE’s share
price (plus reinvested dividends)
are met over the three financial
years ending 31 December 2025.
The annual bonus for 2023 was
based on a combination of EBITDA,
revenue and non-financial
strategic and personal
performance targets. Performance
against the financial metrics was
below threshold and, while a
number of the non-financial goals
were met, the Committee
determined it would not be
appropriate to pay any bonus.
The LTIPs awarded in 2021 with
performance periods ending on
31 January 2023 lapsed as the
applicable performance
conditions were not met.
Executive changes
Tim Pullen, Chief Financial Officer,
stepped down from his role in the
Group with effect from 6 June
2023. Under the terms of his
departure he received a cash sum
equal to his basic salary in respect
of his notice period and accrued
holiday, and was treated as a
good leaver under the incentive
arrangements. However, as noted
above the outturn of the 2023
annual bonus and vesting of the
LTIPs with performance periods
ending on 31 January 2023 was nil.
Jutta Meier joined the Board as the
new Chief Financial Officer with
effect from 22 January 2024. As
part of the terms of her
recruitment, she was granted a
share award with a market value of
£200,000 on 28 February 2024 to
buy out awards forfeited at her
previous employer. This award will
vest in two equal tranches on the
first and second anniversary of
grant subject to her remaining
employed by the Company. Details
of her package on appointment
are set out later in this report.
2024 remuneration
At the time of the finalisation of this
report the Committee had not yet
completed its review of the
Directors remuneration
arrangements for 2024. A particular
focus remains the approach to
long-term incentive provision,
which is a key competitive issue for
the Company given that IQE
operates in a global marketplace
where the majority of the
Company’s competitors grant
long-term incentives that are both
higher in quantum and typically
consist of a mix of performance-
vested and time-vested shares.
The Committee will update
shareholders on its thinking in
due course once this review has
been completed.
Victoria Hull
Non-Executive Director and Chair
of the Remuneration Committee
9 April 2024
72
IQE Annual Report and Accounts 2023
Victoria HullNon-Executive Director and Chair of the Remuneration Committee Remuneration at a glance
Salary
Allowance and
benefits
Annual
incentive
Long-term
incentives
Shareholding
requirement
Purpose and link
to strategy
Supports the
attraction and
retention of the best
global talent with
capability to deliver
IQE’s strategy.
Provision of market-
competitive and
cost-effective
benefits to support
attraction and
retention of talent.
Incentivises delivery
of IQE’s financial and
strategic targets.
Provides focus on
key financial metrics
and the individual’s
contribution to
IQE’s performance.
Provides alignment
with shareholders by
ensuring a
significant
percentage of
remuneration is
delivered in shares
and rewards
long-term
performance in line
with IQE’s strategy.
Ensures alignment
between the
interests of
Executive Directors
and shareholders.
Key features
Reviewed annually
Salaries take account of external market and
internal employee context.
Provision of competitive benefits linked to local
market practice.
Maximum Company pension contribution is 10%
of salary.
Maximum is 120% of salary with 50% of the
maximum payable for target performance.
Performance measures, weightings and
stretching targets set annually.
Normally paid in cash after end of the financial
year, save that any payout above 100% of salary
will normally be made in the form of share grant.
Subject to malus and clawback provisions.
Normal annual awards of up to 200% of salary
may be granted under IQE’s LTIP.
The normal maximum award may be
exceeded in exceptional circumstances,
such as recruitment.
Three-year performance period.
Performance measures, weightings and
stretching targets reviewed annually.
Subject to malus and clawback provisions.
Implementation in
2023
No increase for CEO or
previous CFO. This was
in line with the
approach for the wider
workforce whose
salaries were frozen
for 2023.
Allowances and
benefits unchanged
from prior year.
The 2023 annual bonus
payout for the CEO and
CFO was nil.
The LTIP awards granted
to the previous
Executive Directors
in 2021 lapsed as
the applicable
performance conditions
were not met.
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 shareholding as
at 31 December 2023
equal to
approximately 419%
of salary.
IQE Annual Report and Accounts 2023
73
Corporate Governance Directors’ Remuneration Report continued
Directors’ Remuneration
Policy
IQE aims to attract, retain and motivate high calibre executives in a highly competitive global industry, whilst
recognising the need to be cost effective, and to incentivise significant industry out-performance. The
Remuneration Committee established the current Remuneration Policy with the aim of balancing these factors,
taking account of investor feedback and prevailing best practice.
This Policy section of the Directors’ Remuneration Report sets out the Policy for Executive Director remuneration
which the Committee intends to operate for 2024. As an AIM quoted company, IQE is not required to put its
Policy to a binding shareholder vote, however, in developing the new Policy the Committee has sought to
comply with the main best practice expectations for UK companies while ensuring the Policy is sufficiently
competitive compared to IQE’s sector, talent markets and ambitions for growth.
As disclosed last year, the Remuneration Committee has been reviewing the remuneration arrangements
of the Executive Directors and members of the ELT, with a view to ensuring that the arrangements are
competitive in the relevant marketplace for each senior role and incentivise and reward exceptional
performance against IQE’s strategy over the longer-term. In particular, this review is focused on the approach
to long-term incentives for senior executives, which are key to IQE’s ability to attract senior talent, for whom
many of our principal competition is headquartered in the US. The current award levels are significantly lower
than the levels seen in our principal competition, who also typically grant a mix of performance-vested and
time-vested share awards. This review remains ongoing and the Committee will update investors in due
course as to its outcome.
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
normally reviewed
annually, with reference
to market levels,
individual contribution,
the experience of each
Executive and increases
across the Group.
Any adjustments
normally become
effective 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.
n/a
n/a
It is anticipated that salary
increases will normally be no
higher than those of salaried
employees as a whole. In
exceptional circumstances
(including, but not limited to,
a material increase in job
size or complexity, 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 who can receive
matching contributions from
IQE of up to 10% of salary.
74
IQE Annual Report and Accounts 2023
Function
Operation
Opportunity
Performance metrics
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, life
assurance, long-term
disability insurance and
reimbursement for fuel,
although may include
other benefits that the
Remuneration Committee
deems appropriate in
the circumstances.
n/a
Benefits may vary according
to role and individual
circumstances. Eligibility
for benefits and the
cost of benefits are
reviewed periodically.
The cost of benefits is
dependent on market rates
and is not capped.
Relocation and
expatriation-related
benefits may also
be provided
where appropriate.
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.
For Executive Directors, the
maximum annual bonus
opportunity will be 120% of
base salary.
Performance is assessed on an annual
basis against a scorecard of financial
and personal/strategic objectives set
at the start of each year.
The bonus pays 0% at
Threshold, 50% at Target
and 100% at stretch, with
straight-line vesting
between these levels.
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
objectives have
been achieved.
Bonus payments are
delivered in cash and
any payment above 100%
of salary will normally be
made in the form of a
share grant.
Clawback (of any
bonus paid) may be
applied during
employment or
for two 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.
Financial measures will be weighted
appropriately each year according to
business priorities, and will normally
represent between 70% and 100% of
the scorecard.
Personal objectives will normally have
a weighting of between 0% and 30% of
the maximum opportunity. These will
be set annually to capture expected
individual contributions to IQE’s
strategic plan. The payout for any
personal element will be reduced by
50% in the event the thresholds for a
majority of the 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 with 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.
IQE Annual Report and Accounts 2023
75
Corporate Governance Directors’ Remuneration Report continued
Function
Operation
Opportunity
Performance metrics
Normal awards of up to 200%
of salary may be granted
under the LTIP.
In exceptional
circumstances, including but
not limited to recruitment,
normal awards may
be exceeded.
Vesting of PSP awards granted under
the LTIP is subject to achieving
performance conditions and
continued employment.
Performance conditions are normally
measured over three consecutive
financial years with awards vesting
three years after grant.
Up to 25% of PSP awards
granted under the LTIP will
be paid for achieving
Threshold performance,
normally increasing on a
straight-line basis to
full vesting for achieving
Stretch performance.
The Remuneration Committee has
limited discretion to amend the
performance conditions provided that
the amended performance condition
is not materially easier to satisfy than
the original condition.
The Remuneration Committee has
discretion to adjust outcomes to
ensure they fairly reflect underlying
performance. The Remuneration
Committee also considers
environmental, social, governance and
health and safety criteria, to ensure
there is no reward for failure.
LTIP
To provide
alignment with
shareholders
and competitive
rewards by
delivering a
significant
proportion of
remuneration in
company
shares and
incentivise
sustained
long-term
performance
that supports
the creation of
shareholder
value.
Under the long-term
incentive plan (LTIP)
annual awards of shares
or nominal-cost options
may be made
to participants.
Award levels and
performance conditions
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 two
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.
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.
Targets applying to the bonus and 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
IQE provides all employees with a consistent package of benefits that includes private medical insurance, life
assurance, long-term disability insurance and reimbursement for fuel.
All employees are eligible to participate in a discretionary annual bonus and receive awards under the LTIP. The
same principles apply to the assessment of performance for determining the individual component of
bonuses for all employees. For other employees, grants under the LTIP are subject to a pre-grant minimum
personal performance condition and normally vest in annual tranches over three years subject to the
employee remaining employed by the Group.
76
IQE Annual Report and Accounts 2023
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 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 85.
Non-Executive Director remuneration
Non-Executive Director
Date of appointment letter
Remuneration per annum
Phil Smith
Carol Chesney
Victoria Hull
Bami Bastani
Maria Marced
Andrew Nelson
19 December 2016
13 May 2019
1 August 2021
1 January 2024
1 January 2024
30 October 2021
£125,000
£50,000
£50,000
$62,000
€57,000
£75,000
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 is a matter 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.
2024 Executive Director remuneration
Americo Lemos
Jutta Meier
k
4
6
0
3
£
,
k
9
8
4
2
£
,
£3m
£2.5m
£2m
£1.5m
£1m
£0.5m
)
k
£
(
k
4
2
2
,
1
£
k
9
4
6
£
k
0
5
6
,
1
£
k
0
5
3
,
1
£
k
6
6
6
£
k
1
4
3
£
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 April 2024, while those for taxable benefits are based on the latest single figure table for
2023. The ‘On-Target’ scenario reflects fixed remuneration as above, plus a target bonus payout of 50% of
maximum and threshold vesting for the PSPs of 20% of maximum. The ‘Stretch’ scenario reflects fixed
remuneration, plus full payout of the annual bonus (120% of salary) plus full vesting of LTIPs. For illustrative
purposes given that the actual 2024 LTIP award levels have not yet been determined the chart assumes 2024
LTIP grants at the normal maximum limit of 200% of salary. The ‘Stretch + 50%’ reflects the ‘Stretch’ scenario plus
an assumed 50% share price appreciation over the LTIP performance period.
IQE Annual Report and Accounts 2023
77
Corporate Governance
Directors’ Remuneration Report continued
Approach to recruitment remuneration
External appointments
When 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
Approach
Base salary
Pension
Benefits
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 those outlined in the
policy table but may also include additional benefits consistent with market practice in their
home location (if based outside of the UK).
Annual Bonus
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.
LTIP
New appointees will be granted awards under the LTIP on the same terms as other executives,
as described in the policy table.
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.
This may be granted in addition to the ongoing remuneration elements outlined in the table above. In doing so,
the Remuneration Committee will consider relevant factors, including the value and form of the award, time to
vesting, performance conditions attached to awards, and the likelihood of these conditions being met.
Any ‘buyout’ awards will typically be made under the existing annual bonus and LTIP schemes, although in
exceptional circumstances the Remuneration Committee may make awards using a different structure.
Any ‘buyout’ awards would have a fair value no higher than the awards forfeited.
Internal appointments
Internal promotions to the Board will be appointed on terms in line with the Policy. Any existing entitlement
made prior to their appointment to the Board, which are not consistent with the Policy may be allowed to
continue on their original terms.
Non-Executive Directors
In recruiting a new Non-Executive Director, the Remuneration Committee will utilise the Policy as set out on
pages 74 to 79.
Service contracts and treatment for leavers and change of control
Executive
Date of service contract
Americo Lemos
Jutta Meier
10 January 2022
22 January 2024
78
IQE Annual Report and Accounts 2023
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 six
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
No annual bonus payable.
‘Good leaver’1
Change of control
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.
1. A ‘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 consulted with shareholders on the adoption of the new all-employee LTIP plan, which
included best practice compliant leaver and change of control provisions. During 2023, the Committee
engaged extensively with investors on the terms of the CEO’s 2023 LTI grant, with the feedback received on the
quantum and performance conditions being reflected in the terms of the award.
IQE Annual Report and Accounts 2023
79
Corporate Governance Directors’ Remuneration Report continued
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 long-term incentives and the parameters, including performance
conditions, for the annual awards under long-term incentives
• 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
• Carol Chesney
• Derek Jones*
* Derek Jones left the Remuneration Committee on cessation of his directorship on 31 December 2023. Maria
• Maria Marced*
Marced joined the Remuneration Committee on 22 January 2024.
Meetings and attendance
The Remuneration Committee met five times in 2023. 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 Leadership Team and remuneration policy’s 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;
• Assessed the annual bonus outcomes for the Executive Directors and the Executive Leadership Team in 2022;
• Reviewed salary increases for IQE’s employees, including the Executive Directors and the Executive Leadership
Team and implemented a salary freeze;
• Evaluated the proposed awards under the Company’s LTIP;
• Reviewed and approved performance conditions for LTIP awards;
• Updated the rules of the Long-Term Incentive to reflect changes to ensure that the leaver provisions that
apply to grants of time-vested restricted share awards below Board are consistent with best practice;
• Determined performance targets for the Executive Directors’ 2023 annual bonus and LTIP awards in line with
IQE’s strategic plan;
• Determined the leaver arrangements for Tim Pullen and remuneration for Jutta Meier on her appointment,
including approving her buyout awards;
• Considered proposed workforce policies on performance rating and workforce pay increases;
• Drafted the Directors’ Remuneration Report; and
• Considered benchmarking and advice from independent remuneration consultants, Mercer.
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 independent Non-Executive Directors.
80
IQE Annual Report and Accounts 2023
Mercer provides independent advice to the Remuneration Committee. Mercer 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).
Fees of £79,818 inclusive of VAT were paid to Mercer in respect of services it provided to the Company in 2023.
The Committee considers that Mercer 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.
Board changes
Tim Pullen stepped down as Chief Financial Officer with effect from 6 June 2023. Under the terms of his
departure he received a cash sum equal to his basic salary in respect of his notice period and accrued
holiday, and was treated as a good leaver under the incentive arrangements. However, as noted above the
outturn of the 2023 annual bonus and vesting of the LTIPs with performance periods ending on 31 January 2023
was nil.
Jutta Meier was appointed to the Board with effect from 22 January 2024. As part of the terms of her
appointment she receives the following:
• Base salary: £300,000
• Benefits comprising: permanent health insurance, life assurance, private medial insurance
• Cash allowance in lieu of salary of 10% of salary
• Maximum bonus opportunity of 120% of salary
• Eligibility to participate in the long-term incentive on an annual basis
In addition, as part of the terms of her appointment she was awarded a grant of time vested nominal priced
options with a face value of £200,000 as compensation for remuneration forfeited at her previous employer.
These awards will vest in two equal tranches on the first and second anniversaries of grant.
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 2023 and the prior year:
Mr Americo Lemos8
Mr Tim Pullen6
Mr Phil Smith7
Total
Salary
Benefits1
Pension2
Buy out – cash3
Buy out – shares4
Total fixed
Annual bonus
Long term incentive5
Total variable
2023
£’000
575
16
58
400
-
1,049
-
-
-
Total Executive Remuneration
1,049
Non-executive fees
-
Total Director Remuneration
1,049
2022
£’000
564
27
56
400
200
1,247
–
–
–
1,247
-
1,247
2023
£’000
160
5
12
-
-
177
-
-
-
177
-
177
2022
£’000
370
11
37
–
–
418
–
–
–
418
–
418
2023
£’000
2022
£’000
–
–
–
–
–
–
–
–
–
–
6
–
–
–
–
6
–
–
–
6
125
125
125
131
2023
£’000
735
21
70
400
–
1,226
–
–
–
1,226
125
1,351
2022
£’000
940
38
93
400
200
1,671
–
–
–
1,671
125
1,796
1. Benefits consist of health cover, private medical insurance, life assurance, long term disability insurance, car allowance and
travel allowance.
2. Executive Directors are entitled to participate in a defined contribution scheme, in relation to which the Company contributes 10% of
salary or equivalent cash allowance.
3. Cash award of £800,000 agreed as part of Americo Lemos’ recruitment arrangements. £200,000 was paid on 28 February 2022
and £200,000 was paid on 31 July 2022. The final £400,000 was paid on 31 January 2023. The cash award is subject to 3 year
clawback provisions.
4. Equity award of 583,709 shares with a fair value at grant of £200,000 as part of Americo Lemos’ recruitment arrangements. The
shares were issued on 10 January 2022. The share award is subject to 3 year clawback provisions.
5. No long-term incentives vested.
6. Tim Pullen was entitled to payments in lieu of notice totalling £195,000 which were paid within the year. Tim Pullen also provided the
Group with consultancy services during the year ended 31 December 2023 and was paid an aggregate amount of £75,000.
7. Mr Phil Smith took on an executive role for the period 7 September 2021 to 9 January 2022 to support the CEO transition from Dr
Andrew Nelson to Americo Lemos. Executive fees in the table above reflect the additional time commitment associated with the
executive role performed by Phil Smith in the period 1 January 2022 to 9 January 2022. Non-Executive fees relate to Mr Phil Smith’s
role as Non-Executive Chairman following the appointment of Mr Americo Lemos as the group’s Chief Executive Officer on
10 January 2022.
8. Americo Lemos’ annual salary is £575,000. The 2022 salary figure reflects his start date of 10 January 2022.
IQE Annual Report and Accounts 2023
81
Corporate Governance Directors’ Remuneration Report continued
Incentive outcomes for year ending 31 December 2023
Annual bonus
The annual bonus for 2023 was determined by a combination of revenue and adjusted EBITDA targets and
non-financial personal/strategic targets. The Committee set stretching performance targets for 2023 which
were linked to the strategy and financial performance of the Group. Financial performance for 2023 was below
threshold resulting in no payment in respect of the financial element for the Chief Executive Officer. Whilst a
number of the non-financial goals had been met, the Committee felt that it would not be appropriate to pay
bonuses to Executive Directors in the current circumstances and exercised its discretion to reduce the bonus
payout to nil.
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
753,236 LTIP options awarded to Tim Pullen and 1,118,938 LTIP options awarded to Drew Nelson, both in 2021 with a
performance period ending on 31 December 2023, have not satisfied the applicable performance criteria and
have lapsed.
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 percentage change in annual remuneration for other
employees is calculated using the average increase in the earnings of all employees who were employed in
the UK throughout 2022 and 2023. 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
Benefits
Annual bonus
Total
Americo Lemos1
All UK Employees
2023
£’000
575
74
0
649
20221
£’000
564
79
0
643
Increase
%
0%
-6.8%
N/A
Increase
%
2.7%
-5.0%
N/A
1. Americo Lemos was appointed as the Group’s Chief Executive Officer on 10 January 2022 with an annual salary of £575,000. The 2022
salary figure has been pro-rated to reflect his start date on 10 January 2022.
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 2021 and 31 December 2022.
Employee
Remuneration
Costs
Distribution
to shareholders
n/a
46.1m
42.1m
Investment
in Capex
R&D and
intangibles
£m
17.9m
18.1m
2022
2023
Review of past performance
The following graph charts the Total Share Return (‘TSR’) of the Company and the FTSE AIM Index (of which IQE is
a member) over the period from 1 January 2018 to 31 December 2023. The table below details the Chief
Executive’s single figure remuneration over the same period.
82
IQE Annual Report and Accounts 2023
Historical TSR performance
)
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T
400
350
300
250
200
150
100
2018
IQE
2019
AIM all share
2020
2021
2022
2023
Historical CEO remuneration
CEO single figure of remuneration (£’000)
STI award as a % of maximum opportunity
LTI award as a % of maximum opportunity
2023
649
0%
0%
2022
643
0%
0%
2021
507
0%
0%
2020
1,110
79%
0%
2019
599
0%
0%
Scheme interests awarded in 2023 (audited information)
Following discussions with the Company’s largest institutional shareholders, a grant to Americo Lemos was
awarded 5,750,000 nominal priced share options. The award is subject to a three-year performance period to
31 December 2025 and is also subject to a two-year hold period following vesting. Vesting is determined by the
Total Shareholder Return.
Executive Director
Award type
Date of award
# shares awarded
Face value
End of performance period
Americo Lemos
Nil-cost option 29 November 2023
5,750,000
– 31 December 2025
The face value of the award was based on a share price of 20p, slightly higher than the average price over the
three days prior to the date of grant, to match the issue price in the Group's equity placing in May 2023.
Performance measure
Absolute TSR (share price in the
3 months ending 31 December 2025
plus dividends if any)
Weighting
(% of award)
Threshold
(25% vesting)
Pro-rata between
25% and 60%
vesting
60% vesting
(100% vesting)
Stretch
100%
40p
40p to 60p
60p to 70p
70p
Absolute TSR performance is measured as the 3-month average share price for the period ending 31 December
2025 plus the value of dividends (if any) paid during the performance period.
IQE Annual Report and Accounts 2023
83
Corporate Governance
Directors’ Remuneration Report continued
Exit payments made in the year
Tim Pullen, Chief Financial Officer, stepped down from his role in the Group with effect from 6 June 2023. Under
the terms of his departure he received a cash sum equal to his basic salary in respect of his notice period and
accrued holiday and was treated as a good leaver under the incentive arrangements with his inflight long-
term incentive awards pro-rated for time up to the date of his cessation of employment. However, in light of
the performance of the Company and as noted above, his 2023 annual bonus was nil and the performance
against the targets for his 2021 LTIP award resulted in nil vesting.
Payments to past Directors
Tim Pullen received £75,000 under the terms of a consultancy agreement with IQE.
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 2023 and the prior year:
Phil Smith¹
Carol Chesney
Sir Derek Jones
Andrew Nelson2
Victoria Hull
Total
NED fees
2023
£’000
125
50
50
75
50
350
2022
£’000
125
50
50
75
50
350
Other
2023
£’000
2022
£’000
0
0
0
0
0
0
6
0
0
0
0
6
Total
2023
£’000
125
50
50
75
50
2022
£’000
131
50
50
75
50
350
356
1. Phil Smith took on an executive role for the period 7 September 2021 to 9 January 2022 to support the CEO transition from Dr Andrew
Nelson to Americo Lemos. Other fees in the table above reflect the additional time commitment associated with the executive role
performed by Phil Smith in the period 1 January 2022 to 9 January 2022.
2. Dr Andrew Nelson provided the Group with consultancy services in the period 1 January 2022 to 31 December 2022 and was paid an
aggregate amount of £72,000.
84
IQE Annual Report and Accounts 2023
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 2023 is set out below.
Since 1 January 2023 there have been the following changes in Directors’ interests in shares:
2023
Americo Lemos
Tim Pullen
Phil Smith
Carol Chesney
Dr Andrew Nelson
Sir Derek Jones
Victoria Hull
Shares owned as at
Shares owned as at
1 Jan 2023
970,457
–
40,000
40,000
1 Jan 2024
9,837,469
–
140,000
90,000
40,567,234
44,867,587
–
231,192
-
281,192
Shareholding requirement
% salary/fee
Current shareholding %
salary/fee
200%
200%
419%
N/A
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, maintains a beneficial interest in 45,567,234 Ordinary
Shares, representing approximately 4.7% of the Company’s issued share capital.
Directors outstanding share awards
2023
Americo Lemos
Tim Pullen
2022
Americo Lemos
Tim Pullen
Unvested and
subject to
continued
performance
Unvested and
subject to
continued
employment
5,940,591
2,231,542
3,065,591
3,328,789
–
–
–
–
Vested but
unexercised
Vested during
year
Lapsed during
year
Exercised
during year
–
–
–
–
–
–
–
–
–
–
–
1,097,247
–
–
–
–
1,097,247 LTIP options awarded to Mr Tim Pullen in 2020 were due to vest on 31 December 2022. The performance criteria for these
awards were not met and these options have lapsed in 2023.
Summary of shareholder voting at the 2023 AGM
Results of the vote on the Remuneration Report at the IQE’s AGM on 29 June 2023 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
577,911,062
543,965
578,455,027
49,141
578,504,168
% of votes cast
99.91
0.09
–
–
–
IQE Annual Report and Accounts 2023
85
Corporate Governance Directors’ Report
Directors’ Report
The Directors present their Annual Report and the Financial Statements for IQE
plc (the “Company”) for the year ended 31 December 2023.
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 57 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 58 and 59 of the Annual
Report. Jutta Meier was appointed
as the Group’s new Chief Financial
Officer and a Director on
22 January 2024.
The beneficial interests of the
Directors in the Company’s share
capital is shown on page 85 of the
Remuneration Report. The
beneficial interests of Americo
Lemos, CEO, have changed during
the year as he participates 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 2023,
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 page 50 of
the Annual Report.
Relationship with Suppliers
and Customers
Our relationships with our
customers are explained
throughout the Annual Report,
particularly on page 28. Our
relationships with our suppliers
are specifically covered on
page 29 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 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.
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 2023
(2022: nil).
86
IQE Annual Report and Accounts 2023
Substantial shareholdings
As at 29 February 2024, 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
Lombard Odier Investment Managers
Canaccord Genuity Wealth Management
T Rowe Price Global Investments
Mr Richard Griffiths*
Hargreaves Lansdown
Interactive Investor
Dr Andrew W Nelson
Citigroup
M&G Investments
Shares
Issued Capital
%
141,593,743
128,443,495
83,009,803
72,771,120
60,199,848
47,490,915
46,266,881
42,079,861
32,726,624
14.73
13.36
8.63
7.56
6.26
4.94
4.81
4.38
3.40
*
Source: Equiniti Investor Analytics as at 29 February 2024. Richard Griffith’s shareholding has been calculated from a TR1 notification
received by IQE advising he crossed the disclosable threshold on 1 March 2024.
Going Concern
In the twelve months to
31 December 2023, reported
revenue declined 31% and the
group made a loss for the year
of £29,378,000. The cash impact
of the loss for the year has been
mitigated by a combination of
the Group’s successful equity
fund raise, careful working capital
management and the deferral
of certain capital and intangible
asset expenditure resulting in an
improvement in the Group’s net
debt position (excluding lease
liabilities and fair value gains/
losses on derivative instruments)
to £2,228,000 (2022: £15,248,000).
At 31 December 2023 the Group
had undrawn committed funding
of £23,363,000 ($29,953,000)
available under the terms of its
credit facilities.
In assessing the going concern
basis of preparation the Directors
have reviewed financial projections
to 31 December 2025 (‘the going
concern assessment period’),
containing both a ‘base case’ and
a ‘severe but plausible downside
case’. The review period extends
beyond the minimum required
12-month period from the date
of approval of the financial
statements to protect against the
recovery in the semiconductor
market occurring later than
forecast by the Directors.
The Group’s ‘base case’ and
‘severe but plausible downside’
cash flow forecasts and
projections, in conjunction with the
level of assessed covenant
headroom on the Group’s
committed bank facilities illustrate
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 up to and including
31 December 2025, such that the
directors consider it appropriate
to adopt the going concern basis
of accounting in preparing the
financial statements. Details of the
going concern assumption and
basis of accounting is set out in
note 2.2 to the financial statements.
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.
Dividends
The Directors do not recommend
the payment of a dividend (2022: £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 34 to 35 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 (2022: 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
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
emissions 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 40.
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
is chaired by me and is 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 2024.
Phil Smith
Chairman, IQE plc
9 April 2024
IQE Annual Report and Accounts 2023
87
Corporate Governance Statement of directors’ responsibilities
Statement of Directors’
responsibilities in respect
of the Annual Report and
the Financial Statements
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 UK adopted international
accounting standards 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 UK
adopted international
accounting standards;
• 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 intend
either 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.
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 its behalf by:
Phil Smith
Chairman, IQE plc.
9 April 2024
88
IQE Annual Report and Accounts 2023
Non-Financial and
Sustainability Information
Statement
The table below outlines how we meet the non-financial and reporting requirements set out in the Companies
Act 2006. Our business model is set out on pages 12 and 13. Our vision and mission statements are described
on page 1, and on pages 31 to 55 we set out how we act as a responsible business.
Information necessary to understand our business
Key policies
Environmental Matters
Our Group policies that support environmental
matters help keep our people and
communities safe.
Environmental Policy
Code of Conduct
Colleagues
Sustainability - see pages 31 to 55.
Task Force on Climate-related Financial
Disclosures - see pages 42 to 49.
IQE promotes a safe working culture where all
of our colleagues, whichever their diverse
background, feel welcomed and belong. Our
HR and ethics policies help to support this
ambition.
Code of Conduct
Health and Safety Policies
Dignity at Work Policy
Paternity Leave Policy
Whistleblowing Policy
Flexible Working Policy
Social Matters
Our Code of Conduct helps our people to do
the right thing and is a framework for
responsible business practices.
Code of Conduct
Environment Policy
Human Rights
Ethical standards - page 33.
Community engagement - page 38.
Health and Safety - pages 38 and 39.
Environmental performance - page 40.
We consider our value chain when
considering human rights, including our own
operations, suppliers and customers.
Suppliers - page 32.
Anti-Slavery Statement - page 33.
Whistleblowing and speak-up Statement -
page 33.
Health and Safety Policies
Code of Conduct
Anti-Slavery Statement
Data Protection Policy
Whistleblowing Policy
Anti-corruption and
anti-bribery
Our Group global policies support compliance
with international laws relating to anti-bribery
and corruption.
Ethical standards - page 33.
Code of Conduct
Anti-Bribery and Corruption
Policy
Gifts and Hospitality Policy
Climate-related
financial disclosures
We are committed to reducing the impact of
our operations on the environment.
Environment Policy
TCFD Report - pages 42 to 49.
IQE Annual Report and Accounts 2023
89
Corporate Governance Independent
auditor’s report
to the members of IQE plc
1. Our opinion is unmodified
We have audited the financial statements of IQE plc
(“the Company”) for the year ended 31 December 2023
which comprise the consolidated income statement,
consolidated statement of comprehensive income,
consolidated balance sheet, consolidated statement of
changes in equity, consolidated cash flow statement,
parent company balance sheet, parent company
statement of changes in equity, parent company cash
flow statement and the related notes, including the
accounting policies in note 2.
In our opinion:
Overview
Materiality:
group financial
statements as a whole
Coverage
£0.9m (2022:£1.4m)
0.8% (2022: 0.8%) of revenue
85% (2022:88%) of group
revenue
Key audit matters
vs 2022
— the financial statements give a true and fair view of
Recurring risks
Carrying amount of Cash
Generating Units
Revenue recognition
Recoverability of parent
company’s investments
in subsidiaries and group
debtor balances
◄►
◄►
◄►
Parent Company
Only
Event driven risk
Going concern
▲
the state of the Group’s and of the parent
Company’s affairs as at 31 December 2023 and of
the Group’s loss for the year then ended;
— the Group financial statements have been properly
prepared in accordance with UK-adopted
international accounting standards;
— the parent Company financial statements have been
properly prepared in accordance with UK-adopted
international accounting standards and as applied in
accordance with the provisions of the Companies
Act 2006; and
— the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
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 requirements including the 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.
90
IQE Annual Report and Accounts 2023
2.
Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement (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 engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters, in decreasing order of audit
significance, were as follows:
The risk
Our response
Going concern
Disclosure quality
Refer to note 2.2 (accounting
policy and financial disclosure)
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern basis
of preparation for the Group.
The assessment of the entity’s ability to
continue as a going concern involves
significant judgement with respect to future
cashflows. These cashflows then impact the
ability of the entity to remain liquid and
meet its obligations as they fall due.
The judgement in respect of the future
cashflows is based on an evaluation of the
inherent risks associated with the ongoing
uncertainty in the semiconductor market
following the significant industry downturn
in 2023. Whilst the industry is expected to
return to growth in 2024 and beyond, there
is uncertainty as to the timing and extent of
the growth. In addition, the Group is
forecasting the commencement of a new
product line in late 2024, ramping up
through to 2025, and there is uncertainty as
to the timing and execution of this new
product line. Together, these circumstances
give rise to uncertainty in the Group’s
cashflow forecasts, that may cast significant
doubt on the entity’s ability to continue as a
going concern and may indicate the
existence of a material uncertainty.
The risk for our audit is whether or not these
facts amount to a material uncertainty that
may cast significant doubt about the Group’s
ability to continue as a going concern.
Where a material uncertainty exists then
that fact would need to be disclosed in the
financial statements.
We considered whether these risks could plausibly affect
the liquidity of the Group in the going concern period by
assessing the director’s sensitivities over the level of
available financial resources and covenant
thresholds
indicated by the Group’s financial forecasts taking into
account the severe but plausible adverse effects which
could arise from these risks.
Our procedures included:
— Sensitivity analysis: We challenged the assumptions in
the base case as well as requesting the directors to
apply a more severe but plausible downside scenario.
— Sensitivity analysis: We considered sensitivities over
the level of available financial resources indicated by
the Group’s financial forecasts taking account of
plausible, but not unrealistic, adverse effects which
could arise from these risks, both individually and
collectively.
— Benchmarking assumptions: We have benchmarked
the key assumptions behind the cashflow forecasts to
customer forecasts where available and customer
demand trends to analyst expectations for those
customers. We also benchmarked to wider market
commentary and market research reports.
— Evaluating Director’s intent: We evaluated the
achievability of the mitigating actions the Directors
consider they would take to improve the Group’s
financial position, should further risks materialise,
which include delays on discretionary personnel
spend, delays to certain CAPEX expenditure, further
restructuring, reduction of Research and Development
expenditure, taking into account the extent to which
the Directors are able to control the timing and
outcome.
— Historical comparisons: We considered forecasting
accuracy when preparing forecast data by performing
retrospective review of historical forecasts to actuals.
— Assessing transparency: We considered whether the
going concern disclosures in note 2.2 to the financial
statements gives a full and accurate description of the
directors’ assessment of going concern, including the
identified risks, dependencies and related sensitivities.
IQE Annual Report and Accounts 2023
91
Corporate Governance 2.
Key audit matters: our assessment of risks of material misstatement (continued)
Carrying amount of Wireless and
Photonics cash generating units
(Wireless - £89.1 million; 2022: £91.9
million
Photonics - £131.9 million; 2022:
£153.3 million)
Refer to note 2.5 and 2.8 (accounting
policy), note 3.1 (accounting estimate)
and note 13 (financial disclosures)
The risk
Our response
Forecast based assessment
Our procedures included:
The carrying amount of the Wireless and
Photonics cash generating units are at an
increased risk of irrecoverability due to the
impact of current market conditions on the
timing and level of cashflows.
The estimated recoverable amount is
subjective due to the inherent uncertainty
involved in forecasting and discounting
future cash flows.
The current market capitalisation is below
total gross assets. This is therefore a
potential impairment indicator which also
increases the associated risk.
The effect of these matters is that there is a
high degree of uncertainty and involvement
of subjective key assumptions, with a
potential range of reasonable outcomes
greater than our materiality for the financial
statements as a whole, and possibly many
times that amount.
The financial statements (note 13) disclose
the sensitivity estimated by the Group.
— Benchmarking assumptions: Comparing the
Group’s assumptions, in particular those relating
to forecast revenue growth and inflation to
externally derived data, such as independent
market reports and customer communications
where available.
— Valuation expertise: We derived a reasonable
range of appropriate discount rates
independently, with the support of our
valuation specialist and compared these with
those calculated by the Group.
— Sensitivity analysis: We performed reasonably
foreseeable scenario analysis on the discount
rate and growth assumptions included in the
forecast;
— Personnel interviews: We held discussions with
the Group’s Chief Technology officer and the
Group Vice President of Sales to corroborate our
understanding of future uses for technologies
and routes to market.
— Comparing valuations: Comparing the sum of
the discounted cash flows to the Group’s market
capitalisation to assess the reasonableness of
those cashflows; and
— Assessing transparency: Assessing whether the
Group’s disclosures about the sensitivity of the
outcome of impairment assessment to changes
in key assumptions reflected the risks inherent
in the recoverable amount of goodwill and
intangible assets.
We performed 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 primarily through the
detailed procedures described.
Revenue recognition
Revenue recognised in the incorrect period
Our procedures included:
(£115.3 million; 2022: £167.5 million)
Refer to note 2.22 (accounting policy)
and note 4.3 (financial disclosures).
There are pressures on achieving internal
and external expectations of results, in
particular Revenue and Adjusted EBITDA
targets and therefore, depending on the full
year’s results there may be an incentive to
accelerate or delay the recognition of
revenue in the current year.
— Test of detail: We agreed a sample of sales
transactions arising around the year end based
on their financial significance, to purchase order
and external delivery confirmation, to assess
whether the performance obligation has been
met and that revenue has not been over- or
understated in the year.
— Test of detail: We agreed a sample of post year
end credit notes, based on their financial
significance, to sales order and external delivery
confirmation, to assess that revenue has not
been overstated to date.
We performed the detailed tests above rather than
seeking to rely on any of the group's controls
because our knowledge of the design of these
controls indicated that we would be unlikely to
obtain the required evidence to support reliance on
controls.
92
IQE Annual Report and Accounts 2023
2. Key audit matters: our assessment of risks of material misstatement (continued)
Parent company: Recoverability of
parent company’s investments in
subsidiaries and group debtor
balances
(Investments: £60.2 million; 2022:
£76.2 million, Receivables: £165.4
million; 2022: £135.5 million)
Refer to notes 2.10 and 2.29
(accounting policy) and notes 16 and
18 (financial disclosures).
Forecast based assessment
Our procedures included:
The carrying amount of the parent
company’s investments in subsidiaries and
receivables from its subsidiaries represents
96% (2022: 96%) of the company’s total
assets.
The recoverable amount of these assets is
subjective due to the inherent uncertainty
involved in forecasting and discounting
future cashflows however ,this is not
considered to be at a high risk of significant
misstatement. Due to their size in the
context of the parent company financial
statements, this is considered to be the area
which has the greatest impact on the parent
company audit.
— Test of detail: We compared the carrying
amount of 100% of the investments and
receivables with the associated subsidiaries’
balance sheet to identify whether their net
assets exceeded the carrying amount, as this is
the most appropriate approximation of their
minimum recoverable amount. We also
assessed whether those subsidiaries have been
profitable historically.
— Assessing subsidiary audit: We assessed the
work performed by the component auditor of
the relevant subsidiary and considered the
results of that work on the subsidiary’s profit
and net assets;
— Comparing valuations: For the investments and
receivables where the carrying amount
exceeded the net asset value, we compared
their carrying amount with the expected value
of the business based on the subsidiaries’
forecast profitability and cashflows.
— Test of details: For each intra-group debtor
counterparty, we have evaluated the likely risk
of default with reference to the Company’s
definition of default and those subsidiaries’
performance against forecasts and forecasts of
future profitability.
We performed 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 primarily through the
detailed procedures described.
We continue to perform procedures over the commercial feasibility criteria to be capitalised as development intangibles not yet available for use.
However, given the incentive to capitalise intangible fixed assets and increasing the metric on which management is appraised has reduced significantly
this year as bonus targets are unlikely to be met, we have not separately identified in our report this year.
IQE Annual Report and Accounts 2023
93
Corporate Governance 3. Our application of materiality and an overview of the scope
of our audit
Materiality for the Group financial statements as a whole was set
at £940,000 (2022: £1.4 million), determined with reference to a
benchmark of Group revenue of which it represents 0.8% (2022:
0.8%).
Materiality for the parent Company financial statements as a
whole was set at £930,000 (2022: £1.39 million), determined
with reference to a benchmark of Company total assets, of which
it represents 0.39% (2022: 0.63%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a
material amount across the financial statements as a whole.
Performance materiality was set at 65% (2022: 65%) of
materiality for the financial statements as a whole, which
equates to £611,000 (2022: £900,000) for the Group and
£604,000 (2022: £901,000) for the parent Company. We applied
this percentage in our determination of performance materiality
based on the level of identified misstatements and control
deficiencies identified in the prior year.
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £47,000 (2022:
£65,000), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Of the Group’s 18 (2022: 18) reporting components, we
subjected 6 (2022: 6) to full scope audits for group purposes and
1 (2022: 1) to specified risk-focused audit procedures. The latter
was not individually financially significant enough to require a
full scope audit for group purposes, but did present specific
individual risks that needed to be addressed.
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 8% (2022: 10%) of total Group revenue, 8% (2022:
14) of total Group assets is represented by 10 (2022: 11) of
reporting components, none of which individually represented
more than 6% (2022: 2%) of any of total Group revenue or total
Group assets. For the residual components, we performed
analysis at an aggregated group level to re-examine our
assessment that there were no significant risks of material
misstatement within these.
The work on 1 of the 6 components (2022: 1 of the 6
component) was performed by component auditors and the
rest, including the audit of the parent company, was performed
by the Group team.
The Group team issued audit instructions to component auditors
on the scope of their work, including minimum procedures to
perform in their audit of revenue.
The Group team approved the component materialities which
ranged from £376,000 to £752,000 (2022: £450,000 to £900,000)
having regard for the mix, size and risk profile of the Group
across the components.
The Group team visited 3 (2022: 2) component locations to
assess audit risks and strategy.
Video and teleconference meetings were held with the
component auditor, At these meetings, the findings reported to
the Group team were discussed in more detail and any further
work required by the Group team was then performed by the
component auditor.
Key:
The scope of the audit work performed was predominantly
substantive as we placed limited reliance on the Group’s internal
control over financial reporting.
Revenue
£115.3m (2022: £167.7m)
Group materiality
£940,000 (2022: £1.4 m)
£940,000
Whole financial
statements materiality (2022:
£1.4m)
£611,000
Whole financial
statements performance
materiality (2022: £910,000)
£752,000
Range of materiality at 7
components (£376,000 to 752,000)
(2022: £450,000 to £900,000)
£47,000
Misstatements reported to the
audit committee (2022: £65,000)
Normalised PBT
Group materiality
Group revenue
1
1
92%
(2022: 90%)
89
91
Group total assets
3
7
92%
(2022: 86%)
79
89
Full scope for group audit purposes 2023
Specified risk-focused audit procedures 2023
Full scope for group audit purposes 2022
Specified risk-focused audit procedures 2022
Residual components
94
IQE Annual Report and Accounts 2023
4. Going concern
The directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Group or the
Company or to cease their operations, and as they have concluded that
the Group’s and the Company’s financial position means that this is
realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least 15 months from the date of
approval of the financial statements (“the going concern period”).
An explanation of how we evaluated management’s assessment of
going concern is set out in the related key audit matter in section 2 of
this report.
Our conclusions based on this work:
• we consider that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is
appropriate;
• we have not identified, and concur with the directors’ assessment
that there is not, a material uncertainty related to events or conditions
that, individually or collectively, may cast significant doubt on the
Group’s or Company's ability to continue as a going concern for the
going concern period; and
• we have nothing material to add or draw attention to in relation to
the directors’ statement on page 88 to the financial statements on the
use of the going concern basis of accounting with no material
uncertainties that may cast significant doubt over the Group and
Company’s use of that basis for the going concern period, and we found
the going concern disclosure in note 2.2 to be acceptable.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with
judgements that were reasonable at the time they were made, the
above conclusions are not a guarantee that the Group or the Company
will continue in operation.
5. Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to
fraud
To identify risks of material misstatement due to fraud (“fraud risks”)
we assessed events or conditions that could indicate an incentive or
pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
— Enquiring of directors, the Audit Committee and the Company
Secretary and inspection of policy documentation 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.
— Reading Board, Audit Committee and Remuneration Committee
meeting minutes.
— Considering remuneration incentive schemes and performance
targets for directors and management including bonus targets and Long
Term Incentive Plan EPS growth targets for director and management
remuneration.
We communicated identified fraud risks throughout the audit and
remained alert to any indications of fraud throughout the audit. This
included communication from the Group audit team to the one full
scope component audit team of relevant fraud risks identified at the
Group level and request to the full scope component audit team to
report to the Group audit team any instances of fraud that could give
rise to a material misstatement at group.
As required by auditing standards, and taking into account possible
pressures to meet profit targets and revisions to market guidance, we
perform procedures to address the risk of management override of
controls and the risk of fraudulent revenue recognition, in particular the
risk that revenue is overstated or understated through recording
revenue in the wrong period.
5. Fraud and breaches of laws and regulations – ability to detect
(continued)
Identifying and responding to risks of material misstatement due
to fraud (continued)
We did not identify any additional fraud risks.
Further detail in respect of this risk is set out in the key audit
matter disclosures in section 2 of this report.
In determining the audit procedures we took into account the
results of our evaluation and testing of the operating
effectiveness of some of the Group-wide fraud risk management
controls. We also performed procedures including:
— Identifying journal entries to test for all full scope components
based on risk criteria and comparing the identified entries to
supporting documentation. These included those posted by
senior finance management and those posted to revenue and
cash accounts with an unusual account pairing.
— Assessing whether the judgements made in making accounting
estimates are indicative of a potential bias.
We discussed with the Audit Committee matters related to actual
or suspected fraud, for which disclosure is not necessary, and
considered any implications for our audit.
Identifying and responding to risks of material misstatement due
to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience and through
discussion with the directors and others within management (as
required by auditing standards) and discussed with the directors
and others within management the policies and procedures
regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout
our team and remained alert to any indications of non-
compliance throughout the audit . This included communication
from the Group audit team to the one full-scope component audit
teams of relevant laws and regulations identified at the Group
level, and a request for the full scope component auditor to
report to the Group audit team any instances of non-compliance
with laws and regulations that could give rise to a material
misstatement at the Group level.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
profits legislation and taxation legislation, and we assessed the
extent of compliance with these laws and regulations as part of
our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a
material effect on amounts or disclosures in the financial
statements, for instance through the imposition of fines or
litigation. We identified the following areas as those most likely
to have such an effect: health and safety and hazardous material
legislation, export control legislation, anti-bribery, employment
law and certain aspects of company legislation, recognising the
nature of the Group’s global manufacturing and development
activities. Auditing standards limit the required audit procedures
to identify non-compliance with these laws and regulations to
enquiry of the directors and other management 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.
IQE Annual Report and Accounts 2023
95
Corporate Governance 5. Fraud and breaches of laws and regulations – ability to detect
(continued)
6. We have nothing to report on the other information in the
Annual Report (continued)
Identifying and responding to risks of material misstatement due
to non-compliance with laws and regulations (continued)
Context of the ability of the audit to detect fraud or breaches of
law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-
compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely
the inherently limited procedures required by auditing standards
would identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect non-
compliance with all laws and regulations.
6. We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not
cover the other information 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 information and, in doing
so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the directors’ report;
— in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In addition to our audit of the financial statements, the directors
have engaged us to audit the information in the Directors’
Remuneration Report that is described as having been audited,
which the directors have decided to prepare as if the Company
were required to comply with the requirements of Schedule 8 to
The Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008 (SI 2008 No. 410) made under the
Companies Act 2006.
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006, as if those requirements applied to the
Company.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is
a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability statement,
and the financial statements and our audit knowledge.
Based on those procedures, we have nothing further material to add
or draw attention to in relation to:
— the directors’ confirmation within the Viability Statement page
56 that they have carried out a robust assessment of the
emerging and principal risks facing the Group, including those
that would threaten its business model, future performance,
solvency and liquidity;
— The Significant and emerging risks disclosures describing these
risks and how emerging risks are identified, and explaining how
they are being managed and mitigated; and
— the directors’ explanation in the Viability Statement 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 statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our work is limited to assessing these matters in the context of only
the knowledge acquired during our financial statements audit. As
we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee as to the
Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is
a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit
knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements and
our audit knowledge:
— the directors’ statement that they consider that 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;
— the section of the annual report describing the work of the Audit
Committee does not appropriately address matters
communicated by us to the Audit Committee, 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 management and internal
control systems.
In addition to our audit of the financial statements, the directors
have engaged us to review their 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 the terms of
our engagement we are required to review the part of the Corporate
Governance Statement relating to the Company’s compliance with
the provisions of the UK Corporate Governance Code specified for
our review. We have nothing to report in this respect.
96
IQE Annual Report and Accounts 2023
Identifying and responding to risks of material misstatement due
Disclosures of emerging and principal risks and longer-term viability
to non-compliance with laws and regulations (continued)
Context of the ability of the audit to detect fraud or breaches of
a material inconsistency between the directors’ disclosures in
law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-
compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely
the inherently limited procedures required by auditing standards
would identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect non-
compliance with all laws and regulations.
6. We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not
cover the other information 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 information and, in doing
so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the directors’ report;
— in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In addition to our audit of the financial statements, the directors
have engaged us to audit the information in the Directors’
Remuneration Report that is described as having been audited,
which the directors have decided to prepare as if the Company
were required to comply with the requirements of Schedule 8 to
The Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008 (SI 2008 No. 410) made under the
Companies Act 2006.
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006, as if those requirements applied to the
Company.
We are required to perform procedures to identify whether there is
respect of emerging and principal risks and the viability statement,
and the financial statements and our audit knowledge.
Based on those procedures, we have nothing further material to add
or draw attention to in relation to:
— the directors’ confirmation within the Viability Statement page
56 that they have carried out a robust assessment of the
emerging and principal risks facing the Group, including those
that would threaten its business model, future performance,
solvency and liquidity;
— The Significant and emerging risks disclosures describing these
they are being managed and mitigated; and
— the directors’ explanation in the Viability Statement 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 statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our work is limited to assessing these matters in the context of only
the knowledge acquired during our financial statements audit. As
we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee as to the
Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is
a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements and
our audit knowledge:
— the directors’ statement that they consider that 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;
— the section of the annual report describing the work of the Audit
Committee does not appropriately address matters
communicated by us to the Audit Committee, 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 management and internal
control systems.
In addition to our audit of the financial statements, the directors
have engaged us to review their 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 the terms of
our engagement we are required to review the part of the Corporate
Governance Statement relating to the Company’s compliance with
the provisions of the UK Corporate Governance Code specified for
our review. We have nothing to report in this respect.
Strategic report and directors’ report
knowledge.
5. Fraud and breaches of laws and regulations – ability to detect
6. We have nothing to report on the other information in the
7. We have nothing to report on the other matters on which we
9. The purpose of our audit work and to whom we owe our
(continued)
Annual Report (continued)
are required to report by exception
responsibilities
Under the Companies Act 2006, we are required to report to you
if, in our opinion:
— adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
— the parent Company financial statements and the part of the
Directors’ Remuneration Report which we were engaged to
audit are not in agreement with the accounting records and
returns; or
— certain disclosures of directors’ remuneration specified by
law are not made; or
— we have not received all the information and explanations
we require for our audit.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006 and the terms of our engagement by the Company. Our
audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report, and the further matters we are
required to state to them in accordance with the terms agreed
with the Company, and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
risks and how emerging risks are identified, and explaining how
We have nothing to report in these respects
Kate Teal
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
66 Queen Square
Bristol
BS1 4BE
09 April 2024
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 88,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; 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; assessing
the Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using 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.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, 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
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
IQE Annual Report and Accounts 2023
97
Corporate Governance 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
Adjusted* (note 5)
Reported
Free cash flow**
Before adjusted* cash flows
Reported
2023
£’000
115,252
4,313
2022
£’000
167,494
23,365
2021
£’000
154,096
18,679
2020
£’000
178,016
30,101
2019
£’000
140,015
16,246
(20,199)
(25,779)
(3,557)
(72,976)
(6,454)
(19,978)
5,386
(5,517)
(4,676)
(18,802)
(23,990)
(29,378)
(5,920)
(74,541)
(19,281)
(31,002)
2,702
(2,893)
(19,010)
(35,128)
15,744
10,074
15,652
8,873
17,940
18,883
36,324
35,457
16,530
8,948
(3,128)
(8,798)
4,148
(2,631)
(1,640)
(697)
24,929
24,062
(25,445)
(33,027)
Adjusted net (debt)/cash***
(2,228)
(15,248)
(5,804)
1,923
(15,970)
Equity shareholders’ funds
Basic EPS – adjusted****
Basic EPS – unadjusted
Diluted EPS – adjusted****
Diluted EPS – unadjusted
169,785
(2.68p)
(3.28p)
175,060
(0.74p)
(9.27p)
234,621
(2.41p)
(3.87p)
260,435
0.29p
(0.41p)
266,593
(2.46p)
(4.51p)
(2.68p)
(3.28p)
(0.74p)
(9.27p)
(2.41p)
(3.87p)
0.29p
(0.41p)
(2.46p)
(4.51p)
*
The adjusted performance measures for 2023 and 2022 are reconciled in note 5. The adjusted performance measures for 2019-2021 are
reconciled in those financial statements.
** Free cash flow is defined as net cash outflow of £5,409,000 (2022: £53,000) before cash inflows from financing activities of £6,631,000 (2022:
£4,732,000) and net interest paid of £3,242,000 (2022: £2,154,000).
*** Adjusted net (debt)/cash is defined as cash less borrowings but excluding lease liabilities and fair value gains/losses on derivative
instruments.
**** 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).
Adjusted EBITDA has been calculated as follows:
Loss after tax
Tax charge / (credit)
Interest expense
Share based payments
(Profit)/Loss on disposal of PPE and intangibles
Adjusted items
Depreciation of PPE
Depreciation of right of use asset
Amortisation of intangible assets
Adjusted EBITDA
2023
£’000
(29,378)
567
3,032
2,565
(152)
3,015
13,186
3,790
7,688
4,313
2022
£’000
(74,541)
(862)
2,427
332
(688)
70,403
14,529
3,981
7,784
23,365
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
98
98
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Consolidated income statement
for the year ended 31 December 2023
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Impairment loss on intangible assets
Impairment reversal/(loss) on trade receivables and contract assets
Gain on acquisition of remaining interest in CSC
Profit on disposal of intangible assets and property, plant and equipment
Other losses
Operating loss
Finance costs
Adjusted loss before income tax
Adjustments
Loss before income tax
Taxation
Loss for the year
Loss attributable to:
Equity shareholders
Loss per share attributable to owners of the parent during the year
Basic loss per share
Diluted loss 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
2023
£’000
2022
£’000
115,252
167,494
5
23
32
5
6
6
8
5
9
(112,924)
2,328
(32,486)
–
1,808
2,419
152
–
(25,779)
(3,032)
(23,231)
(5,580)
(141,111)
26,383
(31,211)
(66,155)
(2,300)
–
688
(381)
(72,976)
(2,427)
(5,984)
(69,419)
(28,811)
(75,403)
(567)
862
(29,378)
(74,541)
(29,378)
(74,541)
(29,378)
(74,541)
12
12
(3.28p)
(3.28p)
(9.27p)
(9.27p)
The notes on pages 107 to 158 form an integral part of these consolidated financial statements.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
99
99
Financial Statements
Consolidated statement of comprehensive income
for the year ended 31 December 2023
Loss for the year
Exchange differences on translation of foreign operations*
Total comprehensive expense for the year
Total comprehensive expense attributable to:
Equity shareholders
* Items that may subsequently be reclassified to profit or loss.
2023
£’000
(29,378)
(8,088)
2022
£’000
(74,541)
14,500
(37,466)
(60,041)
(37,466)
(60,041)
(37,466)
(60,041)
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 107 to 158 form an integral part of these consolidated financial statements.
100
100
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Consolidated balance sheet
as at 31 December 2023
Non-current assets
Intangible assets
Property, plant and equipment
Right of use assets
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets held for resale
Total current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Bank borrowings
Derivative financial instruments
Lease liabilities
Provisions for other liabilities and charges
Total current liabilities
Non-current liabilities
Trade and other payables
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
Total equity
Note
2023
£’000
2022
£’000
13
14
15
10
17
18
19
20
21
23
21
22
20
21
21
10
22
24
35,378
129,553
37,895
–
37,014
127,055
41,432
–
202,826
205,501
24,577
38,220
5,617
2,274
70,688
273,514
(42,572)
(531)
(4,153)
–
(5,865)
(2,998)
34,161
44,828
11,620
–
90,609
296,110
(37,545)
(690)
(6,225)
(381)
(4,843)
(1,625)
(56,119)
(51,309)
(2,208)
(3,692)
(40,435)
(604)
(671)
–
(20,643)
(46,026)
(1,065)
(2,007)
(47,610)
(103,729)
(69,741)
(121,050)
169,785
175,060
9,615
155,844
(47,466)
32,447
19,345
8,048
154,720
(45,246)
40,535
17,003
169,785
175,060
The notes on pages 107 to 158 form an integral part of these consolidated financial statements. The financial
statements on pages 98 to 158 were authorised for issue by the Board of Directors and approved on 9 April 2024 and
were signed on its behalf.
Ms J Meier
Mr A Lemos
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
101
101
Financial Statements
Consolidated statement of changes in equity
for the year ended 31 December 2023
At 1 January 2023
8,048
154,720
(45,246)
40,535
Share
capital
£’000
Share
premium
£’000
Retained
earnings /
(losses)
£’000
Exchange
Rate reserve
£’000
Other
reserves
£’000
17,003
Total
equity
£’000
175,060
Comprehensive expense
Loss 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/(charge) from shares
issued
Transfer of merger reserve to retained
earnings (see note 24)
Total transactions with owners
(29,378)
–
–
(8,088)
(29,378)
(8,088)
–
–
–
(29,378)
(8,088)
(37,466)
–
–
–
–
–
–
–
–
–
–
1,567
1,124
(1,342)
–
1,567
–
1,124
28,500
27,158
–
–
–
–
–
–
–
2,484
(142)
2,484
(142)
28,500
29,849
(28,500)
–
2,342
32,191
At 31 December 2023
9,615
155,844
(47,466)
32,447
19,345
169,785
At 1 January 2022
Comprehensive expense
Loss 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
Total transactions with owners
Share
capital
£’000
Share
premium
£’000
8,036
154,632
Retained
earnings/
(losses)
£’000
29,295
Exchange Rate
reserve
£’000
Other reserves
£’000
Total
equity
£’000
26,035
16,623
234,621
–
–
–
–
–
12
12
–
–
–
–
–
88
88
(74,541)
–
–
14,500
(74,541)
14,500
–
–
–
(74,541)
14,500
(60,041)
–
–
–
–
–
–
–
–
289
91
–
380
289
91
100
480
At 31 December 2022
8,048
154,720
(45,246)
40,535
17,003
175,060
Other reserves relate to share based payments.
The notes on pages 107 to 158 form an integral part of these consolidated financial statements.
102
102
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Consolidated cash flow statement
for the year ended 31 December 2023
Cash flows from operating activities
Adjusted cash inflow from operations
Cash impact of adjustments
Cash generated from operations
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 and intangible
assets
Acquisition of subsidiary, net of cash received
Adjusted cash used in investing activities
Cash impact of adjustments – proceeds from disposal of property, plant
and equipment and intangible assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Expenses associated with issue of ordinary shares
Proceeds from borrowings
Repayment of borrowings
Payment of lease liabilities
Net cash generated from financing activities
Net decrease 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
2023
£’000
2022
£’000
5
27
28
28
28
15,744
(5,670)
10,074
(3,242)
(912)
5,920
(12,158)
(3,113)
(2,852)
553
(390)
15,652
(6,779)
8,873
(2,154)
(775)
5,944
(9,438)
(4,699)
(3,795)
7,203
–
(17,960)
(16,802)
–
6,073
(17,960)
(10,729)
31,239
(1,390)
9,932
(28,363)
(4,787)
6,631
(5,409)
11,620
(594)
100
–
15,814
(6,256)
(4,926)
4,732
(53)
10,791
882
5,617
11,620
The notes on pages 107 to 158 form an integral part of these consolidated financial statements.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
103
103
Financial Statements
Parent company balance sheet
for the year ended 31 December 2023
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
Derivative financial instruments
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/(losses)
Other reserves
Total equity
Note
2023
£’000
2022
£’000
13
14
16
10
18
18
20
21
23
22
21
22
24
7,664
17
60,169
–
165,422
233,272
5,315
389
76,248
–
135,464
217,416
2,217
–
605
2,436
2,217
235,489
3,041
220,457
(37,193)
(857)
–
(195)
(29,753)
–
(381)
(573)
(38,245)
(30,707)
(3,692)
(671)
(4,363)
(42,608)
192,881
(16,529)
(909)
(17,438)
(48,145)
172,312
9,615
155,844
7,928
19,494
192,881
8,048
154,720
(7,468)
17,012
172,312
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 parent company’s (registered number: 03745726) loss for the financial year amounted to £11,762,000 (2022:
£9,297,000 loss).
The notes on pages 107 to 158 form an integral part of these consolidated financial statements.
The financial statements on pages 98 to 158 were authorised for issue by the Board of Directors and approved on
9 April 2024 and were signed on its behalf.
Ms J Meier
Mr A Lemos
104
104
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Parent company statement of changes in equity
for the year ended 31 December 2023
At 1 January 2023
Comprehensive expense
Loss for the year
Total comprehensive expense
Transactions with owners
Share based payments
Tax relating to share options
Proceeds/(charge) from shares issued
Transfer of merger reserve to retained earnings
(see note 24)
Total transactions with owners
Share capital
£’000
Share
premium
£’000
Retained
earnings /
(losses)
£’000
8,048
154,720
(7,468)
Other
reserves
£’000
17,012
Total
Equity
£’000
172,312
–
–
–
–
1,567
–
1,567
–
–
(11,762)
(11,762)
–
–
(11,762)
(11,762)
–
–
1,124
–
1,124
–
–
(1,342)
2,484
(2)
28,500
2,484
(2)
29,849
28,500
27,158
(28,500)
-
2,482
32,331
At 31 December 2023
9,615
155,844
7,928
19,494
192,881
At 1 January 2022
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 2022
Share capital
£’000
Share
premium
£’000
8,036
154,632
Retained
earnings/
(losses)
£’000
1,829
Other
reserves
£’000
16,724
Total
Equity
£’000
181,221
–
–
–
–
12
12
–
–
–
–
88
88
(9,297)
(9,297)
–
–
(9,297)
(9,297)
–
–
–
–
289
(1)
–
288
289
(1)
100
388
8,048
154,720
(7,468)
17,012
172,312
Other reserves relate to share based payments.
The notes on pages 107 to 158 form an integral part of these consolidated financial statements.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
105
105
Financial Statements
Parent company cash flow statement
for the year ended 31 December 2023
Cash flows from operating activities
Cash outflow from operations
Interest (paid)/received
Net cash used in operating activities
Purchase of intangible assets
Purchase of property plant and equipment
Proceeds from disposal of property, plant and equipment and intangible assets
Note
27
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Expenses associated with issue of ordinary shares
Proceeds from borrowings
Repayments of borrowings
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
2023
£’000
2022
£’000
(17,453)
(1,025)
(18,478)
(2,767)
(3)
351
(11,004)
1,244
(9,760)
(3,683)
(297)
–
(2,419)
(3,980)
31,239
(1,390)
9,932
(22,177)
17,604
(3,293)
2,436
(857)
100
–
15,814
–
15,914
2,174
262
2,436
The notes on pages 107 to 158 form an integral part of these consolidated financial statements.
106
106
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Notes to the financial statements
for the year ended 31 December 2023
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. Material 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 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
Group applies fair value measurement in its accounting
for derivative foreign currency financial instruments (see
note 2.19).
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 has experienced weaker customer demand
and lower customer orders in 2023 compared to 2022
as a result of the global semiconductor industry
downturn. The industry downturn presented a
temporary but significant challenge to sales volumes in
Q1-Q3 2023 prior to a gradual improvement in market
dynamics and customer demand in Q4 2023. Market
dynamics and customer demand is expected to
continue to improve, aligned with external market views,
in 2024, ahead of a full market recovery by 2025.
The Directors have taken steps to strengthen the
balance sheet of the Group during 2023 in order to
mitigate the financial impact of the semiconductor
industry downturn. Actions taken include:
• The successful refinancing of the Group’s £27,300,000
($35,000,000) multi-currency revolving credit facility
provided by HSBC Bank plc on 16 May 2023. The tenor
of the facility has been extended to 1 May 2026 with
quarterly leverage and interest cover covenant tests
applicable to the facility, commencing at December
2023
• The successful £31,098,546 equity fund raise
completed on 18 May 2023 in order to ensure that the
Company can continue to invest to execute on its
strategy, meet its near-term liquidity requirements
and deliver a sustainable balance sheet position
going forward
• The implementation of cost cutting actions, including
staff redundancies, operational efficiencies and
reductions in areas of discretionary expenditure which
are under the control of the Directors
• Deferral of capital and intangible asset expenditure
under the control of the Directors
In the twelve months to 31 December 2023, reported
revenue declined 31% and the group made a loss after
tax for the year of £29,378,000. The liquidity impact of the
loss for the year has been mitigated by a combination
of the Group’s successful equity fund raise, careful
working capital management and the deferral of
certain capital and intangible asset expenditure
resulting in an improvement in the Group’s adjusted net
debt position (net debt excluding lease liabilities and fair
value gains/losses on derivative instruments) to
£2,228,000 (2022: £15,248,000) At 31 December 2023 the
Group had undrawn committed funding of £23,363,000
($29,953,000) available under the terms of the Group’s
revolving credit facility.
In assessing the going concern basis of preparation the
Directors have reviewed financial projections to 30 June
2025 (‘the going concern assessment period’),
containing both a ‘base case’ and a ‘severe but
plausible downside case’. The review period extends
beyond the minimum required 12-month period from
the date of approval of the financial statements to take
account of a minimum liquidity position that is forecast
shortly after the 12-month period.
IQE Annual Report and Accounts 2023
107
107
IQE Annual Report and Accounts 2023
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
2. Material accounting policies continued
Base Case
The base case is derived from Group’s latest Board
approved 2024 budget and 2025 forecasts. The base
case incorporates an expected improvement in market
dynamics and the impact of cost cutting actions
already implemented by the Board.
The base case was prepared with the following key
assumptions:
• Revenue for 2024 in line with current analyst
consensus, with a forecast return to year-on-year
growth in 2024 with a full market recovery forecast in
2025
• Commencement of the new PowerGaN business in
late 2024 ramping up through 2025 with mid teen £’m
revenue forecast in H1 2025. This revenue has been
restricted to current committed capacity and the
forecasts do not include further capital expenditure
that would be required to exploit the wider market
opportunity.
• Direct wafer product margins for 2024 and 2025
consistent with 2023
• Labour inflation in 2024 in line with labour market
norms
• Cost inflation in 2024 operating and administrative
costs in line with the current inflationary environment
• A high-teen digit £’m of capital expenditure in 2024
and in 2025 which includes investment in committed
Gallium Nitride (GaN) related manufacturing capacity,
enabling diversification into the high-growth power
electronics and advanced display (uLED) markets
• Sale of the Group’s freehold manufacturing site in
Pennsylvania following cessation of manufacturing
activities in 2023
In the base case the Group is forecast to maintain
liquidity headroom and to comply with its leverage and
interest cover banking covenants throughout the going
concern assessment period. Liquidity headroom falls to
~£8.0m in October 2024 with adjusted net debt of £20.1m
(net debt excluding lease liabilities and fair value
gains/losses on derivatives).
Severe but plausible downside case
The severe but plausible downside case was prepared
using the following key assumptions:
• Revenue is assumed at 6% down on the base case for
the remainder of H1 2024, 16% down on the base case
for H2 2024 and 18% down for 2025 reflecting a
combination of greater uncertainty the further out
into the future, a delay in market recovery and a delay
in the new PowerGan business which is forecast to
ramp up in 2025
• In line with the revenue reduction in both years, there
is a reflective reduction in variable operating costs for
2024 and 2025
• The removal of the proceeds from sale of the
technology asset development over and above those
reflected in the base case. These costs savings and
cash management actions have already been
identified, are in the control of management and are
actionable readily
In the severe but plausible downside case the Group’s
liquidity is reduced to less that £1.0m in May 2025 with
adjusted net debt of £27.7m (net debt excluding lease
liabilities and fair value gains/losses on derivatives). The
Group is forecast to comply with its leverage and
interest cover banking covenants throughout the going
concern assessment period.
Whist acknowledging that under the severe but
plausible scenario liquidity headroom is tight, the
Directors believe that the Company and Group will have
adequate cash resources to continue operating for the
foreseeable future and to meet their liabilities as they
fall due for the going concern assessment period, such
that the Directors consider it appropriate to adopt the
going concern basis of accounting in preparing the
Company and Group 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 2023:
• IFRS 17 ‘Insurance contracts’ which establishes the
principles for the recognition, measurement and
presentation and disclosure of insurance contracts
and supersedes IFRS 4 ‘Insurance contracts’.
• Amendments to IAS 1 ‘Presentation of financial
statements’ and the disclosure of accounting policies
which requires 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 (see note 10).
The adoption of these standards, amendments and
interpretations has not had a material impact on the
financial statements of the Group or parent company.
manufacturing site in Pennsylvania
• The application of mitigations in the form of further
labour savings, reductions in certain non-
manufacturing related discretionary expenditure and
deferred investment in capital expenditure and
108
108
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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.
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
2024 and have not been applied in preparing these
consolidated financial statements:
• 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.
• Amendment to IFRS 16 ‘Leases’ which confirms the
initial and subsequent recognition principles for
variable lease payments as a liability in a sale and
leaseback transaction.
• Amendment to IAS 7 ‘Statement of Cash Flows’ and
IFRS 7 ‘Financial Instruments: Disclosures’ related to the
disclosure and transparency of supplier finance
arrangements.
• IFRS S1 ‘General Requirements for Disclosure of
Sustainability related Financial Information’ and IFRS
S2 ‘Climate related Disclosures’.
The Directors anticipate that at the time of this report
none of the new standards, amendments to standards
or 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 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.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
109
109
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
2. Material accounting policies continued
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 a
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 the 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.
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 ranges
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.
110
110
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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
ranges 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.
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
10 to 40 years
Short leasehold improvements
5 to 30 years
Plant and machinery
Fixtures and fittings
3 to 15 years
3 to 10 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.
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. 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.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
111
111
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
2. Material accounting policies continued
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.
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.
Indicators that impairment losses might have reversed
are assessed annually.
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 Assets held for resale
Assets held for resale are not depreciated, are
measured at the lower of carrying amount and fair
value less costs to sell and are presented separately in
the statement of financial position.
2.13 Preference share debt instruments
Preference share financial assets are debt instruments
due from a related party (see note 33). 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.
2.14 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.
112
112
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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;
• 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) and
contract assets (note 2.23).
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 and contract
assets 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.
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, 12-
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.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
113
113
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
2. Material accounting policies continued
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. 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.
2.15 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 as 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 2.16), borrowings (note 2.17) and lease
liabilities (note 2.7) in the consolidated balance sheet.
2.16 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.
2.17 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.
2.18 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.
2.19 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).
114
114
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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.
2.20 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.
2.21 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.
2.22 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.
• Warranty provisions comprise the replacement cost
of wafers expected to be returned under warranty
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.
2.23 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 provisions. 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, performance obligations
have been satisfied and 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 provisions. 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.
Assets and liabilities arising from contracts with
customers are separately identified. Contract assets
relate to consideration recognised for work completed
but not billed at the balance sheet date. Contract
liabilities relate to obligations to transfer goods or
services to a customer for which the entity has received
consideration (or the amount is due) from the
customer.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
115
115
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
2. Material accounting policies continued
Reactor Rental
Reactor rental revenue relates to the sale of reactor
capacity to customers, primarily for development
purposes. Revenue is recognised on a straight line basis
over the time period to which the capacity sold relates.
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 at a point in time
when the following conditions are met:
• 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.
2.24 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.
2.25 Finance income and finance costs
The Group’s finance income and finance costs 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.
Interest income or expense associated with cash and
cash equivalents, bank borrowings and lease liabilities is
treated as an operating activity cashflow in the
consolidated cashflow statement.
2.26 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.
2.27 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.
116
116
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
2.28 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.
2.29 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.
2.30 Investment in subsidiaries
Investments in subsidiaries are held at cost of
investment less provision for impairment in the parent
company financial statements.
2.31 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.
2.32 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 Directors 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
and fair value gains/losses on derivative instruments
where it is deemed necessary by the Directors 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.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
117
117
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
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, which
has subsequently been extended, for the right to use the
assets of the joint venture. This agreement, which
contains rights attaching to the use of the joint venture’s
assets, met the definition of a lease. In the Group’s
judgement, due to the variable nature of the lease
payments, which were directly linked to the actual
usage of the assets, the lease payments were 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 up to the date of acquisition of the CSC on 22
September 2023 (see note 32).
Joint Venture – Classification of preference
share debt
Prior to the acquisition of CSC on 22 September 2023,
the Group classified 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 was on the basis that these
preference shares, redeemable at par, contingent on
the generation of cash by CSC, were 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 required that any surplus cash
generated by the CSC was 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 met the requirements to be measured at
amortised cost in line with the treatment previously
adopted under IAS 39. The instrument was held within a
business model whose sole objective was to collect the
contractual cash flows. These cash flows, in turn,
represent solely payments of principal and interest on
the principal amount outstanding.
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.
The Shareholder Agreement established that the CSC
was 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 had equal Board
representation and voting rights.
On 22 September 2023, the Group acquired the 50%
ordinary equity shareholdings and the preference
shareholdings of its joint venture partner in CSC taking
control of the company and increasing its equity
ownership to 100% (see note 32). The following critical
accounting judgements are therefore only applicable
up until the date of acquisition.
Prior to its acquisition on 22 September 2023, the Group
did not control the CSC, such that its 50% equity
investment in the joint venture was accounted for using
the equity method in accordance with the accounting
policies set out in note 2.
118
118
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Intangible assets – Technology development
assets not yet available for use
Intangible assets include development cost assets not
yet available for use of £2,992,000 (2022: £4,278,000)
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 expected 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 non-cash, non-operational or significant and
infrequent items that would distort period on period
comparability, where it is deemed necessary by the
Directors to do so to provide further understanding of
the financial performance of the Group. Details of the
adjusted items are included in note 5.
b) Critical accounting estimates and key sources
of estimation uncertainty
3.1 Cash Generating Unit impairment testing
At the end of each reporting period, the Group assesses
whether there is any indication of impairment of non-
current assets allocated to the Group’s CGU’s. 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 non-current assets
are tested for impairment by grouping operational sites
and production assets into CGUs based on type of
production.
In the twelve months to 31 December 2023, the global
semiconductor industry downturn has negatively
impacted the Group’s results with a loss for the year of
£29,378,000 and operating losses in each of its Wireless
and Photonics CGU’s. As a result of this, non-current
assets allocated to the Wireless and Photonics CGUs
have been tested for impairment.
Photonics
The recoverable amount of the Photonics CGU of
£138,389,000, determined based on value in use
calculations is greater than the carrying amount
(£131,899,000) of the associated intangible assets,
property, plant and equipment, right of use assets and
working capital allocated to the CGU such that no
impairment of Photonics CGU assets has been
identified.
Key assumptions and sensitivity analysis in respect of
the recoverable amount of the Photonics CGU is
presented in note 13.
Wireless
The recoverable amount of the Wireless CGU of
£111,916,000, determined based on value in use
calculations is greater than the carrying amount
(£89,101,000) of the associated intangible assets,
property, plant and equipment, right of use assets and
working capital allocated to the CGU such that no
impairment of Wireless CGU assets has been identified.
Key assumptions in the value in use calculations include
a risk adjusted discount rate of 18.5% and revenue
growth assumptions that for years 1 and 2 reflect the
latest board-approved forecasts, with subsequent
growth of 7.2%, 4.8% and 4.2% in years 3, 4 and 5 followed
by a long-term growth rate of 2%.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
119
119
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
3. Critical accounting judgements and key
sources of estimation uncertainty continued
Growth rates in the value in use calculations take
account of continuing market demand for compound
semiconductors and associated technology
advancement, 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.
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, direct wafer product
margins and changes in the discount rate applied in the
value in use calculations.
• A decrease in the aggregated compound annual
revenue growth rate used of 1.5% would eliminate all
headroom between the value in use recoverable
amount and the carrying value of the Wireless CGU.
• A decrease in direct wafer product margins by 1.5%
would eliminate all headroom between the value in
use recoverable amount and the carrying value of the
Wireless CGU.
• An increase in the discount rate of 3.7% would
eliminate all headroom between the value in use
recoverable amount and the carrying value of the
Wireless CGU.
3.2 Going Concern
The Group has prepared the financial statements
adopting the going concern basis of accounting. As set
out in note 2.2, there is ongoing uncertainty in the
semiconductor industry following the significant industry
downturn in 2023. Whilst the industry is expected to
return to growth in 2024 and beyond, there is
uncertainty as to the timing and extent of the growth. In
addition, the Group is forecasting the commencement
of a new product line in late 2024, ramping up through
to 2025, and whilst significant customer engagement
exists there is uncertainty as to the timing and execution
of this new product line. Together, these circumstances
give rise to uncertainty in the Group’s cashflow
forecasts, the Directors have concluded that these
circumstances do not indicate the existence of a
material uncertainty.
c) Other accounting estimates and sources of
estimation uncertainty
3.3 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 £19,063,000 (2022: £22,968,000). The
amortisation charge for development cost intangible
assets in the current year is £5,996,000 (2022:
£6,767,000). 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
£855,000 (2022: £1,227,000) to £6,851,000 (2022:
£7,994,000).
3.4 Valuation of lease liabilities and right of use
assets
The application of IFRS 16 requires the Group to make
judgements 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 at the date of
inception or modification of the lease, assessed as
2.25%-6.90% depending on the lease characteristics for
existing historic leases.
If the incremental rate of borrowing decreased by 0.10%,
the impact would be to increase the lease liability by
£156,000 (2022: £205,000).
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
£713,000 (2022: £2,030,000) greater in 2023 if it were
assumed that all performance criteria for existing
awards would be met.
120
120
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
4. Segmental analysis
4.1 Description of segments and principal activities
The Chief Operating Decision Maker is defined as the Executive Leadership Team. The Executive Leadership Team,
consisting of the Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Technology Officer,
Chief People Officer, Executive VP Global Business Development, SVP of Communications Infrastructure and Security
Business Unit, VP US Sales, Director of Corporate Marketing, VP US EPI Operations and Substrates, VP Asia and Europe
EPI Operations, Chief of Staff and the Executive VP General Counsel & Company Secretary, 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.
• CMOS++ – 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
silicon technologies.
The Executive Leadership Team 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 Leadership Team and therefore have not been disclosed.
4.2 Adjusted Operating Loss
Adjusted operating loss 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,
CEO recruitment costs, CFO settlement and recruitment costs and impairments where the impairment is the result
of an isolated, non-recurring event. Adjusted operating loss also excludes the effects of equity settled share based
payments and the gain on deemed disposal as part of the acquisition accounting for the group’s former joint
venture (see note 32).
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
Wireless
Photonics
CMOS++
Central corporate costs
Adjusted operating loss
Adjusted items (see note 5)
Wireless
Photonics
CMOS++
Central corporate costs
Operating loss
Finance costs
Loss before tax
2023
£’000
53,877
59,098
2,277
2022
£’000
76,016
88,637
2,841
115,252
167,494
4,638
(9,988)
(2,269)
(12,580)
4,705
11,162
(1,513)
(17,911)
(20,199)
(3,557)
(1,004)
(2,445)
(45)
(2,086)
(63,754)
(5,438)
(10)
(217)
(25,779)
(72,976)
(3,032)
(2,427)
(28,811)
(75,403)
IQE Annual Report and Accounts 2023
121
121
IQE Annual Report and Accounts 2023
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
4. Segmental analysis continued
4.3 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
2023
£’000
Photonics
2023
£’000
CMOS++
2023
£’000
Total
2023
£’000
–
–
8,982
–
–
–
8,982
–
53,877
53,877
50,116
59,098
2,277
2,277
106,270
115,252
Wireless
2022
£’000
Photonics
2022
£’000
CMOS++
2022
£’000
Total
2022
£’000
–
–
14,493
1,500
–
–
14,493
1,500
76,016
76,016
72,644
88,637
2,841
2,841
151,501
167,494
Included within bespoke customer product revenue is revenue of £50,712,000 (2022: £62,571,000) 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 £45,961,000 (2022: £97,199,000) are derived from three customers (2022: three) who each
account for greater than 10% of the Group’s total revenues:
Customer
Customer 1
Customer 2*
Customer 3
Customer 4
Segment
Wireless
Photonics
Photonics
Photonics & Wireless
2023
£’000
18,268
N/A
13,625
14,067
2023
% revenue
16%
N/A
12%
12%
2022
£’000
37,721
21,964
18,501
19,013
2022
% revenue
23%
13%
11%
11%
There are no customers in the CMOS++ segment that account for greater than 10% of the Group’s total revenue.
*Disclosed as exceeded disclosure threshold in 2022.
122
122
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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
Taiwan
UK
2023
£’000
54,520
54,448
72
16,226
1,319
1,853
3,826
7,490
1,738
44,506
2,157
14,326
25,174
2,849
2022
£’000
112,295
112,284
11
16,409
2,104
3,286
3,080
4,578
3,361
38,790
5,961
13,937
13,221
5,671
115,252
167,494
Property, plant and equipment
Intangible assets
Right of use assets
2023
£’000
44,733
32,495
52,325
2022
£’000
46,584
32,044
48,427
2023
£’000
17,849
1,623
15,906
129,553
127,055
35,378
2022
£’000
20,826
1,506
14,682
37,014
2023
£’000
8,354
433
29,108
37,895
2022
£’000
10,060
516
30,856
41,432
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
123
123
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
5. Adjusted performance measures (‘APM’)
The Group’s results report certain financial measures before a number of adjusted items that are not defined or
recognised under IFRS, including adjusted earnings before interest, tax, depreciation and amortisation, adjusted
earnings before interest, tax, depreciation and amortisation margin, adjusted operating loss, adjusted loss before
income tax and adjusted losses per share. The Directors believe that the adjusted performance 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 performance 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 performance measures and the impact on
the Group’s reported financial performance.
Revenue
Cost of sales
Gross profit/(loss)
SG&A
Impairment of intangibles
Impairment reversal/(loss) on
receivables
Other losses
Gains on acquisitions
Profit on disposal of PPE and intangibles
Operating loss
Finance costs
Loss before tax
Taxation
Loss for the period
Share based payments
Share based payments – CEO
recruitment
CEO recruitment
CFO severance & recruitment
Impairment - goodwill
Impairment – other intangibles
Gain on deemed disposal of JV
Restructuring
Restructuring – profit on disposal of
PPE
Adjusted
Results
£’000
115,252
(111,244)
4,008
(26,167)
–
1,808
–
–
152
(20,199)
(3,032)
(23,231)
(759)
(23,990)
Adjusted
Items
£’000
–
(1,680)
(1,680)
(6,319)
–
–
–
2,419
–
(5,580)
–
(5,580)
192
(5,388)
Pre-tax
Adjustment
£’000
(2,520)
Tax
Impact
£’000
192
(45)
(300)
(454)
–
–
2,419
(4,680)
–
–
–
–
–
–
–
–
–
2023
Reported
Results
£’000
115,252
(112,924)
2,328
(32,486)
–
1,808
–
2,419
152
(25,779)
(3,032)
(28,811)
(567)
Adjusted
Results
£’000
167,494
(140,962)
26,532
(26,780)
–
(2,300)
(381)
–
(628)
(3,557)
(2,427)
(5,984)
64
Adjusted
Items
£’000
2022
Reported
Results
£’000
–
(149)
167,494
(141,111)
(149)
(4,431)
(66,155)
26,383
(31,211)
(66,155)
–
–
–
1,316
(69,419)
–
(69,419)
798
(2,300)
(381)
–
688
(72,976)
(2,427)
(75,403)
862
(29,378)
(5,920)
(68,621)
(74,541)
2023
Adjusted
Results
£’000
(2,328)
(45)
(300)
(454)
–
–
2,419
(4,680)
Pre-tax
Adjustment
£’000
(223)
(109)
(96)
(62,716)
(3,439)
Tax
Impact
£’000
(200)
–
–
–
724
2022
Adjusted
Results
£’000
(423)
(109)
(96)
(62,716)
(2,715)
(4,152)
–
(4,152)
–
1,316
274
798
1,590
(68,621)
Total
(5,580)
192
(5,388)
(69,419)
The nature of the adjusted items is as follows:
124
124
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Current year
• Share based payments – The charge (2022: charge) relates to share based payments recorded in accordance
with IFRS 2 ‘Share based payment’ of which £1,680,000 (2022: £149,000) has been classified within cost of sales in
gross profit and £840,000 (2022: £74,000) has been classified as selling, general and administrative expenses in
operating loss. No cash has been defrayed in the year (2022: £nil) in respect of employer social security
contributions relating to unapproved employee share options. Share based payments which arise each financial
year are classified as an APM due to the non-cash charge being partially outside of the Group's control as it is
based on factors such as share price volatility and interest rates which may be unrelated to the performance of
the Group during the period in which the expense occurred.
• Chief Executive Officer recruitment – The Chief Executive Officer’s starting bonus of £1,000,000, of which £200,000
relates to a share-based payment award and £800,000 relates to a cash award is payable over the first three
years of employment. The charge of £345,000 (2022: £205,000) includes share award and cash costs associated
with the new Chief Executive Officer’s starting bonus of £345,000 (2022: £435,000), settlement costs and legal fees
of £nil (2022: £nil) associated with the transition of the former Chief Executive Officer to a non-executive role and a
credit of £nil (2022: £230,000 credit) relating to external recruitment fees. Cash costs defrayed in the period total
£463,000 (2022: £715,000).
• Chief Financial Officer severance & recruitment - The charge of £454,000 (2022: £nil) consists of settlement costs
and legal fees in relation to the former Chief Financial Officer and recruitment costs in relation to the newly
appointed Chief Financial Officer. Cash costs defrayed in the period total £454,000 (2022: £nil).
• Restructuring – The charge of £4,680,000 (2022: £4,152,000) relates to restructuring costs associated with the
announced closure of the Group’s manufacturing facility in Pennsylvania, USA and a Group wide restructuring
programme to reduce labour costs in order to mitigate the impact of the industry wide semiconductor downturn.
• Restructuring charges of £3,390,000 (2022: £1,136,000) consist of employee related costs of £1,789,000 (2022:
£1,136,000) and site decommissioning costs of £1,601,000 (2022: £nil) relating to the announced closure of the
Group’s manufacturing facility in Pennsylvania, USA in 2024. The charge was classified as selling, general
and administrative expenses within operating loss. As at 31 December 2023, cumulative restructuring
charges of £5,346,000 have been incurred. Cash costs totalling £4,037,000 have been incurred to date with
£3,087,000 (2022: £606,000) defrayed in the current year with a further £1,608,000 expected in 2024.
• Restructuring charges of £1,290,000 (2022: £nil) relate to labour costs associated with a group wide
restructuring programme and associated employee redundancies (excluding costs relating to the closure
of the group’s manufacturing facility in Pennsylvania). The charge was classified as selling, general and
administrative expenses within operating loss. Cash costs defrayed in the period total £1,290,000 (2022: £nil).
• Gain on acquisitions of £2,419,000 (2022: £nil) relates to the gain recognised on acquisition of the remaining shares
in the Group’s joint venture, CSC, increasing its shareholding to 100% (see note 32). Cash costs defrayed in the
period total £nil (2022: £nil).
The cash impact of adjusted items in the consolidated cash flow statement of £5,670,000 (2022: £6,779,000)
represent costs associated with the recruitment of the group’s Chief Executive Officer (£463,000), the recruitment
and severance of the group’s Chief Financial Officer (£454,000), onerous contract royalty payments related to the
Group’s cREO™ technology (£256,000), payment of employee related costs associated with labour cost reductions
within the Group (£1,290,000), payment of employee and site related decommissioning costs associated with the
announced closure of the Group’s site in Pennsylvania (£3,087,000) and payment of employee and site related
decommissioning costs associated with the closure of the Group’s manufacturing facility in Singapore (£120,000).
Prior period
• Restructuring charges of £nil (2022: £3,016,000) consist of employee related costs of £nil (2022: £220,000), site
decommissioning costs of £nil (2022: £1,512,000), asset write downs of £nil (2022: £863,000) and asset transfer costs
of £nil (2022: £421,000) relating to the closure of the Group’s manufacturing facility in Singapore in June 2022. The
prior period charge was classified as selling, general and administrative expenses within operating loss. Cash
costs defrayed in the period total £120,000 (2022: £5,088,000).
• Restructuring profits on disposal of £nil (2022: £1,316,000) consist of the sale of assets in Singapore following the
cessation of trade in 2022 and the sale of assets in North Carolina to facilitate the consolidation of the Group’s
manufacturing operations from Pennsylvania. Proceeds received in the year total £nil (2022: £6,073,000) with a
profit on disposal of £nil (2022: £1,316,000) classified within ‘Profit on disposal of intangible assets and property,
plant and equipment’.
• Impairment of goodwill – The non-cash charge of £nil (2022: £62,716,000) relates to impairment costs associated
with the Wireless CGU of £nil (2022: £62,382,000) and the Photonics CGU of £nil (2022: £334,000) – see note 13.
• Impairment of other intangibles – The non-cash charge of £nil (2022: £3,439,000) relates to the impairment of
certain technology development costs and intellectual property patent assets.
• The prior year non-cash impairment charge of £3,439,000 relates to the impairment of distributed feedback laser
technology development costs where the Group has taken the decision to discontinue the development and
commercialisation of the technology.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
125
125
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
5. Adjusted performance measures (‘APM’) continued
Adjusted EBITDA (adjusted earnings before interest, tax, depreciation, amortisation and profit/loss on disposal of PPE
and intangibles) is calculated as follows:
Loss attributable to equity shareholders
Finance costs
Tax
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible fixed assets
(Profit)/loss on disposal of PPE and intangibles*
Adjusted Items
Share based payments
Share based payments - Chief Executive Officer recruitment
Chief Executive Officer recruitment
Chief Financial Officer severance & recruitment
Gain on deemed disposal of JV
Restructuring
Restructuring – profit on disposal of PPE
Impairment of intangibles
Adjusted EBITDA
Adjusted EBITDA margin
2023
£’000
(29,378)
3,032
567
13,186
3,790
7,688
(152)
5,580
2,520
45
300
454
(2,419)
4,680
–
–
4,313
4%
2022
£’000
(74,541)
2,427
(862)
14,529
3,981
7,784
628
69,419
223
109
96
–
–
4,152
(1,316)
66,155
23,365
14%
* Excludes the adjustment ‘Restructuring – profit on disposal of PPE’ which is separately disclosed as part of the groups adjusted items.
126
126
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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
Services provided by auditors
Expenses relating to variable lease payments not included in the measurement of the
lease liability
Research and development
Exchange (gains)/losses
Cost of raw materials consumed
Profit on disposal of fixed assets
Other losses – fair value movements on derivative financial instruments
Adjusted items (see note 5)
Impairment of intangible assets
Gain on deemed disposal of JV
Restructuring
Share based payments
Share based payments - Chief Executive Officer recruitment
CEO recruitment
CFO severance & recruitment
2023
£’000
2022
£’000
13,186
3,790
7,688
830
4,818
1,823
(1,108)
43,412
(152)
–
5,580
–
(2,419)
4,680
2,520
45
300
454
14,529
3,981
7,784
567
6,822
1,127
1,331
62,693
(688)
381
69,419
66,155
–
2,836
223
109
96
–
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 were payable to the Group’s joint venture, CSC,
associated with the Group’s right of use of the joint venture’s assets. The Group acquired its joint venture, CSC, on 22
September 2023 (note 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
Additional fees payable in relation to the audit of the parent company and consolidated
financial statements for the year ended 31 December 2022
Fees payable to the company’s auditor and its associates for other services:
• Audit of the company’s subsidiaries
Total KPMG LLP (group auditors)
2023
£’000
2022
£’000
671
134
25
830
547
-
20
567
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
127
127
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
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
2023
£’000
2022
£’000
33,960
3,566
2,024
2,565
42,115
39,410
4,040
1,969
332
45,751
2023
Number
2022
Number
446
131
577
531
134
665
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 81, ‘Scheme interest awarded in 2023’ on page 83,
‘Exit payments made in the year’ on page 84, ‘Single total figure of remuneration for Non-Executive Directors’ on
page 84, and ‘Share Options’ on page 85.
Key management within the Group comprises members of the Executive Leadership Team and Non-Executive
Directors. Compensation to key management in 2023 totalled £4,212,000 (2022: £3,578,000), consisting of
emoluments and other benefits in kind of £4,106,000 (2022: £3,409,000) and pension contributions of £106,000
(2022: £169,000). The charge for share based payment awards to key management totalled £1,001,000 (2022:
£132,000). A charge for termination costs payable to key management who have left the business totalled £424,000
(2022: £150,000).
8. Finance costs
Bank and other loans
Interest expense on lease liabilities
2023
£’000
(1,810)
(1,222)
2022
£’000
(1,099)
(1,328)
(3,032)
(2,427)
128
128
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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 credit
Total tax charge/(credit)
2023
£’000
1,112
1,112
(407)
(138)
(545)
567
2022
£’000
89
89
(713)
(238)
(951)
(862)
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 23.5% (2022: 19.0%) as follows:
Loss on ordinary activities before taxation
Tax charge at 23.5% thereon (2022: 19.0%)
Effects of:
Expenses not deductible for tax purposes
Overseas tax rate differences
Tax losses for which no deferred tax asset was recognised
Share option schemes
Adjustments in respect of prior years
Total tax (charge)/credit for the year
2023
£’000
(28,811)
6,771
(2,366)
126
(4,787)
(449)
138
(567)
2022
£’000
(75,403)
14,327
(14,105)
2,262
(2,159)
(263)
800
862
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.
Deferred tax asset recognition has been restricted in the UK to reflect future forecast profitability, an assessment that
includes the impact of softness in trading forecasts as a result of the industry-wide semiconductor downturn. 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.
Deferred tax asset recognition has been restricted in the US to reflect future forecast profitability, an assessment that
includes the impact of softness in trading forecasts as a result of the industry-wide semiconductor downturn and
the Group’s consolidation of its US manufacturing 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.
Deferred tax asset recognition has been restricted in Singapore due to the closure of the 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 movement in
the number of options where performance criteria are expected to be achieved and a reduction in the Group share
price.
The Group’s results report certain financial measures after a number of adjusted items with a tax impact of £192,000
(2022: £798,000) as detailed in note 5. The tax impact of adjusted items, excluding share based payments, is £nil due
to the restricted recognition of deferred tax assets.
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.
Any closing UK deferred tax asset or liability in the financial statements has been recognised in accordance with the
rate enacted as part of the Finance Act 2021 with any timing differences recognised at a corporation tax rate of 25%.
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)/credit to equity for the year
2023
£’000
2022
£’000
(142)
(142)
91
91
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
129
129
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
10. Deferred Taxation
Deferred tax
At 1 January
Income statement credit recognised in the year
Tax charge recognised directly in equity
Exchange differences
At 31 December
2023
£’000
(1,065)
545
(142)
58
(604)
2022
£’000
(2,060)
951
91
(47)
(1,065)
The amount of deferred tax assets expected to unwind within the next twelve months is £nil (2022: £nil) 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 2022
(Charge)/credit to income statement
Exchange differences
At 31 December 2022
(Charge)/credit to income statement
Exchange differences
At 31 December 2023 before set-off
Set-off of tax*
At 31 December 2023 after set-off
Deferred tax assets
At 1 January 2022
Charged to income statement
Charged to equity
Exchange differences
At 31 December 2022
Charged to income statement
Charged to equity
Exchange differences
At 31 December 2023 before set-off
Set-off of tax*
At 31 December 2023 after set-off
(Restated)**
Right of Use
Asset
£’000
Accelerated
Capital
Allowances
£’000
(10,699)
854
(283)
(10,128)
708
139
(9,281)
(11,370)
(596)
(488)
(12,454)
968
223
(11,263)
Intangibles
£’000
(4,155)
990
(18)
(3,183)
(29)
42
(3,170)
(Restated)
Leases
£’000
(Restated)
Tax Losses
£’000
12,966
(780)
–
293
12,479
(957)
–
(146)
11,376
10,729
621
–
448
11,798
(761)
–
(186)
10,851
Other
£’000
469
(138)
91
1
423
616
(142)
(14)
883
(Restated)
Total
£’000
(26,224)
1,248
(789)
(25,765)
1,647
404
(23,714)
23,110
(604)
(Restated)
Total
£’000
24,164
(297)
91
742
24,700
(1,102)
(142)
(346)
23,110
(23,110)
–
* 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.
** 2022 deferred tax balances have been restated to incorporate the amendment to IAS 12 ‘Income Taxes’ that came into effect for periods
commencing on or after 1 January 2023. The adjustment to the disclosure has had no impact on the Group’s consolidated loss for the year,
total net assets or cash position.
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 tax assets of £52,968,000 (2022: £33,238,000) in respect of tax losses
amounting to £228,197,000 (2022: £146,304,000) that can be carried forward against future taxable income. The tax
losses include £39,823,000 of tax losses acquired as part of the acquisition of Compound Semiconductor Centre
Limited on 22 September 2023 (see note 32). The deferred tax asset can be recognised if sufficient profits from the
same trade arise in future periods.
130
130
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
The Group did not recognise deferred tax assets of £1,997,000 (2022: £1,627,000) in respect of carried forward notional
tax credits on the R&D Expenditure Credit Scheme in the UK.
Tax losses in the UK totalling £135,278,000 (2022: £75,610,000) have no date of expiry. Tax losses in Singapore totalling
£39,713,000 (2022: £31,880,000) 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 £96,858,000 (2022: £96,100,000)
losses amounting to £8,525,000 and £1,261,000 expire in 2024 and 2025.
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 £1,660,000 (2022: £657,000) has been recognised within operating loss in relation to claims made under
the R&D Expenditure Credit Scheme (RDEC) in the UK.
Company
Deferred tax assets
At 1 January 2022
(Charged)/credited to income statement
Charged to equity
At 31 December 2022
(Charged)/credited to income statement
Charged to equity
At 31 December 2023
Tax Losses
£’000
–
744
–
744
777
–
1,521
Share
Options
£’000
113
(40)
(1)
Other Timing
Differences
£’000
14
(830)
–
72
19
(2)
89
(816)
(794)
–
(1,610)
Total
£’000
127
(126)
(1)
–
2
(2)
–
11. Dividends
No dividend has been paid or proposed in 2023 (2022: £nil).
12. Loss per share
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
allows 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 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
2023
£’000
(29,378)
5,388
(23,990)
2022
£’000
(74,541)
68,621
(5,920)
2023
Number
2022
Number
896,744,318 804,466,357
8,797,413
10,155,464
906,899,782 813,263,770
(2.68p)
(3.28p)
(2.68p)
(3.28p)
(0.74p)
(9.27p)
(0.74p)
(9.27p)
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
131
131
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
13. Intangible assets
Group
Cost
At 1 January 2023
Additions
Acquired through business
combination
Disposals
Foreign exchange
At 31 December 2023
Accumulated amortisation and
impairment
At 1 January 2023
Charge for the year
Disposals
Foreign exchange
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Group
Cost
At 1 January 2022
Additions
Disposals
Foreign exchange
At 31 December 2022
Accumulated amortisation and
impairment
At 1 January 2022
Charge for the year
Disposals
Impairment
Foreign exchange
Goodwill
£’000
Patents
£’000
Development
costs
£’000
72,128
–
204
–
(4,146)
8,860
124
–
(651)
(15)
92,271
2,852
–
–
(3,461)
Software
£’000
13,882
2,643
Customer
contracts
£’000
Total
£’000
8,330
–
195,471
5,619
–
–
(76)
1,490
(8,029)
(301)
1,694
(8,680)
(7,999)
68,186
8,318
91,662
16,449
1,490
186,105
64,472
–
–
(3,685)
60,787
7,852
167
(651)
(13)
7,355
69,303
5,996
–
(2,700)
72,599
8,500
720
–
(39)
9,181
8,330
805
(8,029)
(301)
158,457
7,688
(8,680)
(6,738)
805
150,727
7,399
7,656
963
1,008
19,063
22,968
7,268
5,382
685
–
35,378
37,014
Goodwill
£’000
Patents
£’000
Development
costs
£’000
64,293
–
–
7,835
72,128
–
–
–
62,716
1,756
8,926
261
(354)
27
8,860
7,983
200
(354)
–
23
83,206
3,795
–
5,270
92,271
55,262
6,767
–
3,439
3,835
Software
£’000
10,332
3,422
–
128
Customer
contracts
£’000
7,427
–
–
903
Total
£’000
174,184
7,478
(354)
14,163
13,882
8,330
195,471
7,646
817
–
–
37
7,427
–
–
–
903
78,318
7,784
(354)
66,155
6,554
At 31 December 2022
64,472
7,852
69,303
8,500
8,330
158,457
Net book value
At 31 December 2022
At 31 December 2021
7,656
64,293
1,008
943
22,968
27,944
5,382
2,686
–
–
37,014
95,866
Customer contract intangible assets relate to customer contracts acquired as part of business combinations.
The amortisation charge of £7,688,000 (2022: £7,784,000) has been classified within ‘selling, general and
administrative expenses’ in the Consolidated Income Statement. The impairment charge of £nil (2022: £66,155,000)
has been classified within ‘impairment loss on intangible assets’ in the Consolidated Income Statement.
Development costs include £2,992,000 (2022: £4,278,000) and Software costs include £6,722,000 (2022: £4,105,000) of
assets not subject to amortisation.
132
132
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Photonics operating segment development cost impairment charges of £3,439,000 in 2022 relate to the impairment
of the Group’s distributed feedback laser technology development costs. The net book value of the assets were
impaired to £nil with the charge recognised in ‘selling, general and administrative expenses’ in the Consolidated
Income Statement in 2022.
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. Corporate assets are allocated to CGUs in proportion to the value of production assets and facilities
related to each CGU.
2023
Acquired on
business
combination
£’000
2023
Cost
£’000
2023
Foreign
exchange
£’000
2023
NBV
£’000
2022
Cost
£’000
2022
Impairment
£’000
2022
Foreign
exchange
£’000
2022
NBV
£’000
Allocation of goodwill by
CGU
Wireless
Photonics
Total Goodwill
–
7,656
7,656
–
204
204
–
(461)
(461)
–
7,399
7,399
64,138
7,990
(62,382)
(334)
(1,756)
–
–
7,656
72,128
(62,716)
(1,756)
7,656
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% (2022: 2%) in line
with The Bank of England’s and the US Federal Reserves monetary policy 2% inflation target.
Value in use calculations are based on the Group’s latest Board approved 2024 and 2025 forecasts and five-year
cash flow forecasts which have been adjusted to exclude the impact of expansionary capital expenditure and
certain linked earnings and cash flows. The Group has experienced weaker customer demand and lower customer
orders. Revenue assumptions in year 1 reflect an expected improvement in market dynamics and customer
demand aligned with external market views with a full market recovery forecast in year 2. Revenue assumptions in
the adjusted cash flow projections for years 3, 4 and 5 have typically been extrapolated from year 2 using business
segment growth rates that take account of industry trends and external market research.
The calculation of the recoverable amount of each CGU in the value in use calculations is highly sensitive to small
changes in the following key assumptions applied in the 2023 cash flow forecast:
2023
Risk adjusted discount rate
Photonics revenue growth rate
Year 1
%
18.5%
Adjusted Board
approved forecast*
Year 2
%
18.5%
Adjusted Board
approved forecast*
Year 3
%
18.5%
Year 4
%
18.5%
Year 5
%
18.5%
5 Year
CAGR
%
N/A
8.6%
17.6%
11.9%
20.2%
* Adjusted Board approved forecast relates to the Group’s Board approved 2024 budget and latest five year cash flow forecasts adjusted to
exclude earnings and cash flows associated with expansionary capital expenditure
2022
Risk adjusted discount rate
Photonics growth rate
Wireless growth rate
Year 1
%
18.7%
Adjusted Board
approved forecast*
Adjusted Board
approved forecast*
Year 2
%
18.7%
Adjusted Board
approved forecast*
Adjusted Board
approved forecast*
Year 3
%
18.7%
Year 4
%
18.7%
Year 5
%
18.7%
5 Year
CAGR
%
N/A
39.9%
12.9%
17.9%
13.8%
12.7%
16.7%
13.4%
10.8%
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
133
133
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
13. Intangible assets continued
The assumptions and growth rates contained in the Group’s value in use calculations have been updated in 2023 to
reflect the Board approved 2024 budget and latest five-year cash flow forecasts which have been adjusted to
exclude the impact of expansionary capital expenditure and certain linked earnings and cash flows. The updated
cashflow forecasts in the current year reflect improvements in market dynamics following the industry wide
semiconductor downturn and latest industry trends and external market research. The value in use calculations
comprise 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 adjusted to reflect the risk associated with the
Group’s growth forecasts given the current financial performance of the business.
Photonics CGU
The recoverable amount of the Photonics CGU of £138,389,000, determined based on value in use calculations is
greater than the carrying amount (£131,899,000) of the associated intangible assets, property, plant and equipment,
right of use assets and working capital allocated to the CGU such that no impairment of Photonics CGU assets has
been identified.
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, direct wafer product
margins 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 and associated technology advancement, 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. If the aggregated compound annual revenue growth rate used in the value
in use calculations to determine the recoverable amount was to decrease by 1.0%, the magnitude of the adverse
impact on the recoverable amount of Photonics CGU non-current assets would be £16,868,000.
• If direct wafer product margins for all products used in the value in use calculations to determine the recoverable
amount were reduced by 1.0%, the magnitude of the adverse impact on the Photonics CGU impairment would be
£16,162,000.
• If the discount rate used in the value in use calculations to determine the recoverable amount was to increase by
0.5%, the magnitude of the adverse impact on the recoverable amount of Photonics CGU non-current assets
would be £5,206,000.
134
134
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Company
Cost
At 1 January 2023
Additions
At 31 December 2023
Accumulated amortisation
At 1 January 2023
Charge for the year
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Company
Cost
At 1 January 2022
Additions
At 31 December 2022
Accumulated amortisation
At 1 January 2022
Charge for the year
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Patents
£’000
Software
£’000
Total
£’000
5,000
2,643
7,643
12,715
2,767
15,482
7,715
124
7,839
6,782
211
6,993
618
207
825
846
933
6,818
4,382
Patents
£’000
Software
£’000
7,454
261
7,715
6,614
168
6,782
1,578
3,422
5,000
475
143
618
7,400
418
7,818
7,664
5,315
Total
£’000
9,032
3,683
12,715
7,089
311
7,400
933
840
4,382
1,103
5,315
1,943
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
135
135
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
14. Property, plant and equipment
Group
Cost
At 1 January 2023
Additions
Acquired through business combination
Transfer to assets held for resale (note 19)
Other transfers
Disposals
Foreign exchange
Land and
buildings
£’000
Short leasehold
improvements
£’000
Fixtures
and fittings
£’000
Plant and
machinery
£’000
Total
£’000
18,916
–
–
(5,086)
–
–
(466)
35,550
3,534
–
–
672
–
(1,868)
15,705
1,876
37
–
–
(174)
(763)
210,513
13,812
3,493
–
(3,355)
(2,722)
(9,169)
280,684
19,222
3,530
(5,086)
(2,683)
(2,896)
(12,266)
At 31 December 2023
13,364
37,888
16,681
212,572
280,505
Accumulated depreciation
At 1 January 2023
Charge for the year
Transfer to assets held for resale (note 19)
Other transfers
Disposals
Foreign exchange
7,720
941
(2,812)
–
–
(144)
21,408
2,997
–
–
–
(1,017)
7,712
940
–
–
(174)
(317)
116,789
8,308
–
(3,191)
(2,321)
(5,887)
153,629
13,186
(2,812)
(3,191)
(2,495)
(7,365)
At 31 December 2023
5,705
23,388
8,161
113,698
150,952
Net book value
At 31 December 2023
At 31 December 2022
7,659
11,196
14,500
14,142
8,520
7,993
98,874
93,724
129,553
127,055
Property, plant and equipment includes assets in the course of construction with a net carrying value of £28,983,000
(2022: £21,091,000).
Group
Cost
At 1 January 2022
Additions
Disposals
Foreign exchange
At 31 December 2022
Accumulated depreciation
At 1 January 2022
Charge for the year
Disposals
Foreign exchange
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Land and
buildings
£’000
Short leasehold
improvements
£’000
Fixtures
and fittings
£’000
Plant and
machinery
£’000
Total
£’000
18,507
26
–
383
18,916
6,621
952
–
147
7,720
38,347
100
(6,671)
3,774
13,272
2,159
(56)
330
202,842
10,155
(15,997)
13,513
272,968
12,440
(22,724)
18,000
35,550
15,705
210,513
280,684
23,457
2,623
(6,671)
1,999
21,408
6,538
1,005
(57)
226
7,712
106,622
9,949
(9,481)
9,699
143,238
14,529
(16,209)
12,071
116,789
153,629
11,196
11,886
14,142
14,890
7,993
6,734
93,724
96,220
127,055
129,730
Other transfers relate to a reclassification of inventory to tangible fixed assets of £508,000 (2022: £nil) and
reclassifications between cost and accumulated depreciation totalling £3,191,000 (2022: £nil) within short leasehold
improvements and plant and machinery. The reclassifications have had no impact on net assets, loss after tax or
total cash flow for 2023.
136
136
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Company
Cost
At 1 January 2023
Additions
Disposals
At 31 December 2023
Accumulated depreciation
At 1 January 2023
Charge for the year
Disposals
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Company
Cost
At 1 January 2022
Additions
Disposals
At 31 December 2022
Accumulated depreciation
At 1 January 2022
Charge for the year
Disposal
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Fixtures
and fittings
£’000
538
3
(351)
190
149
24
–
173
17
389
Fixtures
and fittings
£’000
241
395
(98)
538
134
15
–
149
389
107
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
137
137
Financial Statements
Land and
buildings
£’000
Fixtures and
Fittings
£’000
Plant and
machinery
£’000
Notes to the financial statements continued
for the year ended 31 December 2023
15. Right of use assets
Group
Cost
At 1 January 2023
Additions
Disposals
Foreign exchange
At 31 December 2023
Accumulated depreciation
At 1 January 2023
Charge for the year
Disposals
Foreign exchange
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Group
Cost
At 1 January 2022
Disposals
Foreign exchange
At 31 December 2022
Accumulated depreciation
At 1 January 2022
Charge for the year
Disposals
Foreign exchange
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
55,064
798
–
(884)
54,978
13,856
3,620
–
(288)
17,188
37,790
41,208
26
62
(4)
(3)
81
12
10
(4)
(1)
17
64
14
60,849
(8,230)
2,445
55,064
16,970
3,782
(8,166)
1,270
13,856
41,208
43,879
23
–
3
26
5
6
–
1
12
14
18
694
17,899
41
210
37,895
41,432
Total
£’000
55,872
860
(4)
(934)
55,794
14,440
3,790
(4)
(327)
Total
£’000
61,601
(8,251)
2,522
55,872
17,334
3,981
(8,187)
1,312
14,440
782
–
–
(47)
735
572
160
–
(38)
729
(21)
74
782
359
193
(21)
41
572
210
370
41,432
44,267
Land and
buildings
£’000
Fixtures and
Fittings
£’000
Plant and
machinery
£’000
138
138
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
16. Investments
Company
Cost
At 1 January 2023
Subsidiaries share based payments charge
At 31 December 2023
Provisions for impairment
At 1 January 2023
Impairment charge
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Company
Cost
At 1 January 2022
Subsidiaries share based payments charge
At 31 December 2022
Provisions for impairment
At 1 January 2022
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Investments
in subsidiaries
£’000
Total
£’000
124,458
1,548
124,458
1,548
126,006
126,006
48,210
17,627
48,210
17,627
65,837
65,837
60,169
76,248
60,169
76,248
Investments in
subsidiaries
£’000
Total
£’000
124,279
179
124,279
179
124,458
124,458
48,210
48,210
48,210
48,210
76,248
76,069
76,248
76,069
Details of the company’s subsidiaries are set out in note 30.
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 Group’s value in use calculations prepared as part of the Group’s goodwill impairment review has identified an
impairment trigger event (2022: 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
£15,239,000 impairment in the Company’s investment in its Wafer Technology sub-group. There has also been an
impairment trigger event for the Company’s investment in its sub-group, headed by EPI Holdings Limited. This has
occurred as a result of the subsidiary, IQE (Europe) Limited, becoming a primarily R&D focused site leading to a
decline in future profitability and an impairment of £2,388,000 of the investment in the EPI Holdings 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 (2022: none).
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
139
139
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
17. Inventories
Group
Raw materials and consumables
Work-in-progress and finished goods
2023
£’000
17,796
6,781
24,577
2022
£’000
24,800
9,361
34,161
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 £13,638,000 (2022: £14,233,000).
£522,000 (2022: £2,811,000) of inventories were written down during 2023 and an expense recognised in the income
statement.
Included in inventory is consignment stock bespoke to individual customer of £nil (2022: £1,052,000).
18. Trade and other receivables
Current
Trade receivables
Other receivables
Contract assets
Prepayments
Non-current
Amounts owed by group undertakings
2023
Group
£’000
15,421
2,894
16,349
3,556
38,220
2023
Group
£’000
–
–
2023
Company
£’000
–
121
–
2,096
2,217
2023
Company
£’000
165,422
165,422
2022
Group
£’000
21,638
3,143
17,898
2,149
44,828
2022
Company
£’000
–
173
–
432
605
2022
Group
£’000
–
–
2022
Company
£’000
135,464
135,464
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 contract assets from 2022, excluding a balance of £1,202,000, have been
transferred to receivables during 2023.
Amounts owed by Group undertakings are unsecured and repayable on demand. Interest is charged at a rate of 5%
per annum (2022: 5% per annum).
The estimated fair values of trade receivables, other receivables, contract assets and amounts owed by group
undertakings are set out in note 23.
19. Assets held for resale
Current
Freehold property held for resale
2023
Group
£’000
2,274
2,274
2023
Company
£’000
–
–
2022
Group
£’000
–
–
2022
Company
£’000
–
–
In September 2020, management committed to a plan to close the Group’s Pennsylvania manufacturing facility and
consolidate the trade and assets into its North Carolina manufacturing site by 2024. Manufacturing activity at the
Pennsylvania site ceased in 2023 and management has now committed to a plan to sell the site and associated
freehold property following completion of all site decommissioning activities. Efforts to sell the freehold property
have started and a sale is expected in 2024.
140
140
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
20. Trade and other payables
Current
Trade payables
Amounts owed by group undertakings
Other taxation and social security
Other payables
Accruals and deferred income
Deferred consideration
2023
Group
£’000
15,243
–
377
11,137
15,750
65
42,572
2023
Company
£’000
1,306
24,068
70
3,195
8,554
-
37,193
2022
Group
£’000
17,007
–
206
5,747
14,585
-
2022
Company
£’000
1,704
23,272
282
3,195
1,300
-
37,545
29,753
Accruals and deferred income include contract liabilities of £618,000 (2022: £1,454,000).
Amounts owed to group undertakings are unsecured and repayable on demand. Interest is charged at a rate of 5%
per annum (2022: 5% per annum).
Non-Current
Deferred consideration
2023
Group
£’000
2,208
2,208
2023
Company
£’000
–
–
2022
Group
£’000
–
–
2022
Company
£’000
–
–
Deferred consideration of £2,273,000 (2022: £nil) is payable to Cardiff University in relation to the acquisition of CSC in
instalments over a period up to 1 January 2029 (see note 32).
21. Borrowings
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
2023
Group
£’000
2023
Company
£’000
2022
Group
£’000
2022
Company
£’000
3,692
40,435
44,127
4,153
5,865
10,018
54,145
3,692
–
3,692
857
–
857
4,549
20,643
46,026
66,669
6,225
4,843
11,068
77,737
16,529
–
16,529
–
–
–
16,529
2023
Group
£’000
2023
Company
£’000
2022
Group
£’000
2022
Company
£’000
4,153
3,692
7,845
857
3,692
4,549
6,225
20,643
26,868
–
16,529
16,529
On 17 May 2023, the Company refinanced its £27,300,000 ($35,000,000) multi-currency revolving credit facility,
provided by HSBC Bank plc. The refinancing has been treated as a debt modification. The facility is secured on the
assets of IQE plc and its subsidiary companies with a committed term to 1 May 2026. Interest on the facility is
payable at a margin of between 2.50 and 3.50 per cent per annum over SONIA on any drawn balances and the
facility is subject to quarterly leverage and interest cover covenants tests which commenced at 31 December 2023.
The facility was £3,937,000 ($5,047,000) utilised at 31 December 2023 (2022: £16,529,000).
On 29 August 2019 a subsidiary of the Group agreed a new £30,000,000 asset finance facility, provided by HSBC Bank
plc, which 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’s bank facilities provided by HSBC Bank plc are subject to certain leverage and interest cover financial
covenants. The Group has complied with all the financial covenants of its borrowing facilities during 2023 and 2022.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
141
141
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
21. Borrowings continued
Lease liabilities
Lease liabilities fall due for repayment as follows
Within one year
Between one and five years
After five years
2023
£’000
2022
£’000
5,865
36,007
4,428
4,843
15,056
30,970
46,300
50,869
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.
22. Provisions for other liabilities and charges
Group
As at 1 January
Charged to the
income statement
Transfers*
Utilised during the
year
Foreign exchange
As at 31
December
Restructuring
£’000
1,252
Onerous
Contract
£’000
1,332
Warranty
Provision
£’000
898
1,132
–
–
–
467
–
Other
£’000
150
–
–
2023
Total
£’000
3,632
1,599
–
Restructuring
£’000
Onerous
Contract
£’000
Warranty
Provision
£’000
Other
£’000
2022
Total
£’000
3,434
1,702
–
–
5,136
2,868
265
–
–
31
854
150 3,049
1,119
–
(735)
1
(413)
(53)
(164)
(48)
(150)
–
(1,462)
(100)
(5,694)
379
(370)
–
(9)
22
– (6,073)
401
–
1,650
866
1,153
–
3,669
1,252
1,332
898
150 3,632
* Transfers in 2022 relate to £265,000 of restructuring provisions reclassified from accruals and £854,000 of warranty provisions reclassified
from trade receivables within the year.
Group
Current
Non-current
Total
Restructuring
£’000
1,650
–
Onerous
Contract
£’000
195
671
Warranty
Provision
£’000
1,153
–
1,650
866
1,153
Other
£’000
–
–
–
2023
Total
£’000
2,998
671
3,669
Restructuring
£’000
162
1,090
Onerous
Contract
£’000
415
917
Warranty
Provision
£’000
898
–
Other
£’000
150
–
2022
Total
£’000
1,625
2,007
1,252
1,332
898
150 3,632
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 £1,608,000 (2022: £1,090,000) 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 31 March 2024.
• The restructuring provision of £42,000 (2022: £162,000) associated with the closure of the Group’s manufacturing
facility in Singapore relates to employee related costs of £nil (2022: £54,000) and site closure costs of £42,000
(2022: £108,000) that are expected to be utilised over a period up to 30 June 2024.
The onerous contract provision represents the cost of minimum guaranteed future royalty payments associated
with cREO™ technology acquired from Translucent Inc that is no longer being commercialised. The onerous contract
provision is expected to be utilised over a period up to 28 February 2027.
The warranty provision relates to the costs of expected returns under warranty that are expected to be utilised over
a period up to 30 June 2024.
The other provision in 2022 related to a charge for termination costs payable to a member of key management who
left the business in early 2023.
142
142
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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
Onerous
Contract
£’000
1,332
–
(413)
(53)
866
Other
£’000
150
–
(150)
–
–
2023
£’000
1,482
–
(563)
(53)
866
Onerous
Contract
£’000
1,702
–
(370)
–
1,332
Other
£’000
–
150
–
–
150
2023
£’000
195
671
866
2022
£’000
1,702
150
(370)
–
1,482
2022
£’000
573
909
1,482
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 28 February 2027.
The other provision in 2022 related to a charge for termination costs payable to a member of key management who
left the business in early 2023.
23. 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.
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 and contract assets due 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.
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.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
143
143
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
23. Financial Instruments continued
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 £5,617,000 (2022: £10,486,000) with
banks with A1 credit ratings and cash at bank balances totalling £nil (2022: £1,134,000) 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
2023
Group
£’000
2023
Company
£’000
2022
Group
£’000
2022
Company
£’000
5,617
15,421
–
19,243
–
–
165,422
121
11,620
21,638
–
21,041
2,436
–
135,464
173
40,281
165,543
54,299
138,073
Included in other receivables are contract assets of £16,396,000 (2022: £17,898,000).
The Group is exposed to credit concentration risk with its two (2022: three) largest customers which represent 32%
(2022: 46%) 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. Events of default have
been limited and when incurred principally relate to smaller independent customers. The Group monitors customer
credit ratings and has experienced low levels of defaults in the past.
Group
Not past due
Past due 0-30
Past due more than 30
Gross
2023
£’000
11,319
3,202
2,065
Provision
2023
£’000
–
–
(800)
Net
2023
£’000
11,319
3,202
1,265
Gross
2022
£’000
15,933
4,621
3,797
16,586
(800)
15,786
24,351
Allowance for bad and doubtful debt
At 1 January
(Credited)/charged to the income statement
Utilised during the year
Foreign exchange
Provision
2022
£’000
–
–
(2,713)
(2,713)
2023
£’000
2,713
(1,808)
–
(105)
800
Net
2022
£’000
15,933
4,621
1,084
21,638
2022
£’000
415
2,300
–
(2)
2,713
As at 31 December 2023, 68% (2022: 65%) of trade receivables were within terms. Of the other trade receivables, 61%
(2022: 55%) were less than 30 days past due. An allowance has been made for estimated irrecoverable amounts
from the sale of goods of £800,000 (2022: £2,713,000). 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 2023 a one cent movement in
the US dollar to Sterling rate would impact the net value of these instruments by £115,000 (2022: £142,000).
144
144
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Group
5+ Years
£’000
561
–
–
4,041
4,602
Group
5+ Years
£’000
–
–
–
26,265
26,265
Company
5+ Years
£’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 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 £28,363,000 (2022: £17,295,000).
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 2023
Trade and other payables
Accruals
Bank borrowings
Lease liabilities
Group
Carrying
amount
£’000
28,653
15,750
7,845
46,300
Group
Contractual
Cash flows
£’000
29,294
15,750
8,214
50,882
98,548
104,140
Group
Less than
12 months
£’000
26,570
15,750
4,277
6,115
52,712
Included in accruals are contract liabilities of £618,000 (2022: £1,454,000).
Contractual cash flow maturities –
Other financial liabilities at amortised cost
31 December 2022
Trade and other payables
Accruals
Bank borrowings
Lease liabilities
Group
Carrying
amount
£’000
22,754
14,585
26,868
50,869
Group
Contractual
Cash flows
£’000
22,754
14,585
26,950
56,437
Group
Less than
12 months
£’000
22,754
14,585
6,250
6,069
Group
1 –2 Years
£’000
350
–
–
5,998
6,348
Group
1 –2 Years
£’000
–
–
20,700
6,065
Group
2–5 Years
£’000
1,813
–
3,937
34,728
40,478
Group
2–5 Years
£’000
–
–
–
18,038
115,076
120,726
49,658
26,765
18,038
Contractual cash flow maturities –
Other financial liabilities at amortised cost
31 December 2023
Trade and other payables
Amounts owed to group undertakings
Bank borrowings
Accruals
Contractual cash flow maturities –
Other financial liabilities at amortised cost
31 December 2022
Trade and other payables
Amounts owed to group undertakings
Bank borrowings
Accruals
Company
Carrying
amount
£’000
4,571
24,068
3,692
8,554
40,885
Company
Carrying
amount
£’000
4,899
23,272
16,529
1,300
Company
Contractual
Cash flows
£’000
4,571
24,068
3,937
8,554
41,130
Company
Contractual
Cash flows
£’000
4,899
23,272
16,529
1,300
46,000
46,000
Company
Less than
12 months
£’000
4,571
24,068
–
8,554
37,193
Company
Less than
12 months
£’000
4,899
23,272
–
1,300
29,471
Company
1 –2 Years
£’000
–
–
3,937
–
3,937
Company
1 –2 Years
£’000
–
–
16,529
–
16,529
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Company
2–5 Years
£’000
–
–
–
–
–
Company
2–5 Years
£’000
Company
5+ Years
£’000
–
–
–
–
–
–
–
–
–
–
145
145
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
23. Financial Instruments continued
Financial risk management
Market risk – Foreign Exchange Risk
The Group operates internationally with operations in the United Kingdom, United States of America and Taiwan, and
is exposed to foreign exchange risk arising from various currency exposures, primarily relating to fluctuations in
exchange rates between UK sterling, US dollars and Taiwanese 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 and Taiwanese dollar exchange rates
given that the Group is required to fund certain costs at its operations in the United Kingdom and Taiwan 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 2023, the fair
value of foreign currency forward exchange contracts held for trading was £nil (2022: £381,000 liability). The foreign
currency forward exchange contracts are classified as Level 2 financial instruments. The fair value of Level 2
financial instruments has 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. The group’s accounting policy for its cash flow hedges is set out in note 2.19.
The Group has certain investments in foreign operations in North America and Taiwan, 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 £161,000 (2022: £665,000).
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 and from its bank borrowings. Cash and cash
equivalents, including foreign currency cash deposits, earn interest at prevailing variable market rates of interest.
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 £4,169,000 (2022:
£10,416,000) 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 and commenced on the first anniversary of the facility.
The variable rate US dollar $35,000,000 (£27,300,000) multi-currency revolving credit facility, which is £3,937,000
($5,047,000) (2022: $20,000,000 (£16,393,000)) utilised at 31 December 2023, has a committed term to 17 May 2026.
Interest on the facility is payable at a margin of between 2.50 and 3.50 percent 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 0% (2022: 0%) and 21% (2022: 54%) respectively.
146
146
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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 2023, would impact annual interest
income by approximately £nil (2022: £nil). A 50-basis point (0.5%) movement in interest rates on the interest-bearing
liabilities held at 31 December 2023 would impact annual interest costs by approximately £39,000 (2022: £134,000).
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 2023 was £218,313,000 (2022: £241,558,000). 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 2023 was 22.2%
(2022: 27.5%).
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
Derivative financial instruments
Company
Cash and cash equivalents
Amounts owed by group undertakings
Other receivables
Amounts owed to group undertakings
Trade and other payables
Derivative financial instruments
2023
Carrying
amount
£’000
5,617
15,421
2,894
16,349
–
(28,653)
2023
Fair
value
£’000
5,617
15,421
2,894
16,349
–
(28,653)
2022
Carrying
amount
£’000
11,620
21,638
3,143
17,898
–
(22,754)
2022
Fair
value
£’000
11,620
21,638
3,143
17,898
163
(22,754)
(7,845)
(7,845)
(26,868)
(26,898)
–
3,783
–
3,783
(381)
4,296
(381)
4,429
2023
Carrying
amount
£’000
–
165,422
121
2023
Fair
value
£’000
–
165,422
121
2022
Carrying
amount
£’000
2,436
135,464
173
2022
Fair
value
£’000
2,436
135,464
173
(24,068)
(24,068)
(23,272)
(23,272)
(4,501)
(4,501)
(4,899)
(4,899)
–
–
(381)
(381)
136,974
136,974
109,521
109,521
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
147
147
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
23. Financial Instruments continued
Basis for determining fair value
The following summarises the significant methods and assumptions used in estimating the fair values of financial
instruments reflected in the prior table:
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 in 2022 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.
Derivative financial instruments
The fair value of derivative foreign currency forward exchange contracts was determined using observable market
data based on quoted market prices or market quotes for similar instruments.
148
148
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
24. Share capital
Group and Company
Allotted, called up and fully paid
Ordinary shares of 1p each
2023
Number
of shares
2023
£’000
2022
Number
of shares
2022
£’000
961,518,692
9,615
804,841,965
8,048
The movement in the number of ordinary shares during the year was:
At 1 January
Employee share schemes
Chief Executive Officer’s starting bonus – share award
Placing
Retail offer
At 31 December
2023
Number
2022
Number
804,841,965 803,555,756
702,500
583,709
–
–
1,183,997
–
150,000,000
5,492,730
961,518,692 804,841,965
156,676,727 ordinary shares (2022: 1,286,209 ordinary shares) were issued during the year as follows:
Employee share schemes
Chief Executive Officer’s starting bonus – share award
Placing
Retail offer
2023
Number
of shares
1,183,997
–
150,000,000
5,492,730
156,676,727
2023
Consideration
1.0p-23.0p
–
20.0p
20.0p
2022
Number
of shares
702,500
583,709
–
–
1,286,209
2022
Consideration
1.0p–23.0p
1.0p
–
–
The share premium arising from consideration received from employee share scheme exercises and the Chief
Executive Officer’s starting bonus share award was £129,000 (2022: £88,000).
On 17 May 2023, IQE plc raised funds by way of a Placing and a Retail Offer to all existing shareholders. In each case
these were offered at an issue price of 20 pence per share (the ‘Issue Price’). The Placing utilised a cashbox structure
and therefore the premium on the ordinary shares and associated costs, in accordance with section 612 of the
Companies Act 2006, were initially recognised within the merger reserve (incorporated within ‘Other reserves’). The
investment in the newly incorporated subsidiary utilised within the cashbox structure has been dissolved in the
period and the merger reserve has subsequently been transferred into retained earnings as it is determined to be
distributable in accordance with the Companies Act 2006. The Placing and Retail Offer raised net funds of
£29,708,000 from the issue of 155,492,730 ordinary shares.
25. Share based payments
The total amount charged to the income statement in 2023 in respect of share based payments was £2,565,000
(2022: £332,000).
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 one 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.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
149
149
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
25. Share based payments continued
Employees
Long-term incentive awards become exercisable between one and ten years from the date of grant, subject to
continued employment and for awards prior to 2022 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;
• growth in earnings per share and total shareholder return targets over a three-year vesting period that cannot be
extended; and
• achievement of strategic group wide and personal objectives.
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 either the market
value of the shares under option at the date of grant or 1p. Options become exercisable between one and ten years
from the date of grant, subject to continued employment and for awards prior to 2022 the achievement of
performance conditions, including growth in adjusted 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
2023
31.85
2.33
2
10
2
68%
3.2%
0%
2022
41.22
4.41
3
10
3
73%
0.9%
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 2023
was £3,821,000 (2022: £4,803,000).
The weighted average fair value of long-term incentive awards granted during the year ended 31 December 2023
was 17.1p (2022: 33.8p).
150
150
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
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
2023
Number
of options
28,970,530
22,427,892
(1,183,997)
(11,544,609)
2023
Average
exercise price
(pence)
4.41p
1.00p
11.88p
3.97p
2022
Number
of options
24,408,115
14,213,210
(699,694)
(8,951,101)
38,669,816
2.33p
28,970,530
2022
Average
exercise price
(pence)
5.99p
1.00p
14.05p
2.59p
4.41p
The weighted average share price at the date share options were exercised was 31.0p (2022: 36.0p).
As at 31 December 2023, the total number of long-term incentive awards and share options held by employees was
38,669,816 (2022: 28,970,530) as follows:
Option price pence/share
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
1.00p
1.00p
At 31 December
Option period ending
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
31 December 2032
31 December 2033
2023
Number of
options
-
2,247,373
2,798,180
7,493,226
300,000
45,000
2,500
-
2,487,464
8,984,712
14,311,361
2022
Number of
options
3,511,811
2,840,474
3,871,827
193,500
362,500
240,000
7,500
4,655,709
3,301,783
9,985,426
-
38,669,816
28,970,530
26. 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
£11,762,000 (2022: £9,297,000 loss).
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
151
151
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
27. 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
Inventory write downs (note 17)
Non-cash movement on trade receivable expected credit losses (note 23)
Non-cash provision movements
Gain on deemed disposal of JV
Profit on disposal of fixed assets
Share based payments
Cash (outflow)/inflow from operations before changes in working capital
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
Decrease in provisions
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 investments
Non-cash movement on trade receivable expected credit losses
Share based payments
Cash (outflow)/inflow from operations before changes in working capital
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
2023
£’000
2022
£’000
(28,811)
3,032
13,186
3,790
7,688
–
522
(1,808)
1,599
(2,419)
(152)
2,565
(808)
7,503
6,601
(1,760)
(1,462)
10,074
2023
£’000
(11,764)
(6,649)
1,222
(813)
24
418
17,627
(6,814)
963
(5,786)
(19,199)
7,532
(75,403)
2,427
14,529
3,981
7,784
66,155
2,811
2,300
3,049
–
(688)
332
27,277
(2,904)
(5,534)
(3,893)
(6,073)
8,873
2022
£’000
(9,171)
(5,748)
595
2,464
15
311
–
15,494
123
4,083
(12,406)
(2,681)
Cash outflow from operations
(17,453)
(11,004)
152
152
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
28. Reconciliation of net cash flow to movement in net debt
Decrease 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
Net movement on fair value of derivative instruments
Other non-cash movements
Net debt at 31 December
2023
£’000
(5,409)
(9,932)
28,363
4,787
17,809
(66,498)
17,809
381
(220)
2022
£’000
(53)
(15,814)
6,256
4,926
(4,685)
(60,191)
(4,685)
(381)
(1,241)
(48,528)
(66,498)
Other non-cash movements include £860,000 of lease additions (2022: £64,000 lease disposals) and the impact of
foreign exchange of £639,000 (2022: £1,305,000).
29. 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
Fair value of derivative instruments
Cash and cash equivalents
Net debt
At 1
January
2023
£’000
(20,643)
(6,225)
(46,026)
(4,843)
(77,737)
(381)
11,620
(66,498)
Cash
flow
£’000
(9,932)
28,363
–
4,787
23,218
–
(5,409)
17,809
Other
non-cash
movements
£’000
26,883
(26,291)
5,591
(5,809)
374
381
(594)
At 31
December
2023
£’000
(3,692)
(4,153)
(40,435)
(5,865)
(54,145)
–
5,617
161
(48,528)
Cash and cash equivalents at 31 December 2023 and 31 December 2022 comprised balances held in instant access
bank accounts and other short-term deposits with a maturity of less than 3 months.
Other non-cash movements include £860,000 of lease additions (2022: £64,000 lease disposals) and the impact of
foreign exchange of £639,000 (2022: £1,305,000).
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
153
153
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
30. Subsidiary undertakings
Name of company
Class of capital
Proportion of
shares held
Activity
Country of
incorporation
Registered Office
IQE (Europe) Limited
Ordinary shares
of £1
100%*
IQE Inc
Common stock
of $0.001
100%*
IQE KC LLC
Limited liability
company
100%*
IQE Taiwan ROC
Ordinary shares
of NT$10
100%
IQE RF LLC
Limited liability
company
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
IQE Silicon
Compounds Limited
MBE Technology Pte
Ltd
Ordinary shares
of £1
Preferred shares
of S$1
Ordinary shares
of S$1
100%
Manufacture of silicon
epitaxy
Manufacture of
advanced
semiconductor
materials
100%
CSDC Private
Limited
Common stock
of $1 par value
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%*
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
EPI Holdings Limited
Ordinary shares
of £1
100%
Dormant holding
company
KTC Wireless LLC
Limited liability
company
100%
Dormant holding
company
IQE USA Inc
Limited liability
company
100%
Dormant holding
company
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
UK
USA
USA
Taiwan
USA
UK
Singapore
Singapore
UK
UK
USA
UK
USA
USA
154
154
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
IQE Solar LLC
Limited liability
company
100%*
Dormant company
USA
IQE Properties Inc
Limited liability
company
100%*
Property holding
company
USA
Wafer Technology
International Limited
Compound
Semiconductor
Centre Limited
* Indirect holdings
Ordinary shares
of £1
Preferred A and
B shares of £1
Ordinary shares
of £1
100%
Holding company
UK
Research, development
and manufacture of
semiconductor
materials
UK
100%*
119 Technology
Drive, Bethlehem,
PA 18015, USA
119 Technology
Drive, Bethlehem,
PA 18015, USA
Pascal Close, St
Mellons, Cardiff
CF3 0LW, UK
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.
IQE (Jersey) Limited was incorporated as part of the cashbox structure utilised within the equity fund raise during the
year (see note 24). The wholly owned subsidiary was dissolved within the year.
31. Joint Venture
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 established that the CSC was jointly controlled by the shareholders,
who had an equal share of the voting rights, such that the Group’s investment in the joint venture was accounted for
using the equity method in accordance with the accounting policies set out in note 2.
On 22 September 2023, the Group acquired the shareholdings of Cardiff University in CSC taking control of the
business and increasing its equity ownership to 100%. The Group’s investment in CSC has been consolidated with
CSC treated as a subsidiary from the date of acquisition of Cardiff University’s shareholding (see note 32).
Summary financial information for CSC is set out below. The information for 2023 includes the results of CSC only for
the period from 1 January to 22 September 2023 because from the 22 September 2023 CSC became a subsidiary of
the Group.
Summary information for Compound Semiconductor Centre Limited
£’000
Revenue
EBITDA
Loss from continuing operations
Loss for the period
1 January to
22 September
2023
£’000
6,516
9
(1,356)
(1,356)
2022
£’000
8,519
12
(1,778)
(1,778)
Total comprehensive expense for the period
(1,356)
(1,778)
Summary balance sheet
Non-current assets
Current assets
Current Liabilities
Non-current Liabilities
Equity attributable to Joint Ventures
2022
£’000
4,173
2,198
(2,443)
(10,670)
(6,742)
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
155
155
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
31. Joint Venture continued
Carrying value of equity interest in CSC Ltd
Net liabilities of CSC Ltd
Proportion of the Group’s ownership interest
Group’s 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
Cumulative unrecognised losses
Carrying amount of the Group’s interest in the JV
Summary of cumulative unrecognised losses
Unrecognised losses brought forward
(Loss) in the period / year
Cumulative unrecognised losses carried forward
2022
£’000
(6,742)
50%
(3,371)
(12,000)
163
15,208
–
2022
£’000
(17,032)
(889)
(17,921)
1 January to
22 September
2023
£’000
(17,921)
(678)
(18,599)
Comparative financial information has been adjusted to reflect the final audited 2022 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.
32. Acquisitions
On 22 September 2023, the Group acquired the 50% equity shareholdings of its joint venture partner in Compound
Semiconductor Centre (CSC) taking control of the company and increasing its equity ownership to 100%.
The acquisition was for total cash consideration of £2,979,000 deferred over a period extending until 1 January 2029.
The cash consideration has been discounted using the Group’s incremental borrowing rate at the acquisition date.
CSC was formed on 9 July 2015 as a joint venture between IQE and Cardiff University. CSC was established as a
centre of excellence for the development and commercialisation of advanced compound semiconductor wafer
products. Since the formation of CSC, the landscape for compound semiconductors and compound
semiconductor research and development has changed significantly with increasing localisation of technology
supply chains and associated research and development. By acquiring CSC and taking control of the operation, the
Group is best placed to:
• Take the necessary steps to restructure the operation which has been loss making in the period immediately prior
to acquisition;
• Directly align research and development activities and capabilities with the Group’s strategy; and
• Exploit technology and commercial relationships developed by CSC to create high volume manufacturing and
sales opportunities for the Group.
In the period post-acquisition, CSC has contributed revenue of £1,397,000 and a net loss of £595,000, including
amortisation of £805,000 on the acquired customer contract intangible asset, to the consolidated revenue and net
loss of the Group for the year.
Effect of acquisition
The acquisition had the following effect on the Group’s loss for the year, assets and liabilities.
To account for the step acquisition, there is a deemed disposal at acquisition date of the existing investment in joint
venture at fair value:
Deemed disposal of equity interest in joint venture at fair value (50%)
Carrying value of investment in joint venture
Gain on deemed disposal of Joint Venture
£’000
2,419
–
2,419
The gain on deemed disposal of £2,419,000 has been recognised in gain on acquisitions in the consolidated income
statement.
156
156
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Fair value of net identifiable assets and liabilities
The fair value of identifiable assets and liabilities in the acquiree at the date of acquisition is illustrated in the table below:
Acquiree’s net assets at the acquisition date:
Intangible fixed assets – customer contracts
Tangible fixed assets
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Net identifiable assets and liabilities
Consideration
Cash consideration (discounted)
Settlement of pre-existing relationships
Total consideration
Fair value of previously held interest in joint venture
Fair value of net identifiable assets
Goodwill
Fair value on
acquisition
£’000
1,490
3,530
529
(390)
(320)
4,839
2,222
402
2,624
2,419
(4,839)
204
The fair value of tangible fixed assets was assessed by an independent third-party valuer, Liquidity Services Limited.
The valuers utilised a combination of market and cost approaches to assess the fair value of the tangible fixed
assets (less costs to sell).
The Group incurred no significant acquisition related costs. Goodwill is not deductible for tax purposes.
The Group and CSC were parties to an intellectual property licence, a contractual agreement that provided the
Group with the right to use CSC’s assets as well as an ordinary trading relationship. At the acquisition date, these
pre-existing relationships were effectively settled as part of the acquisition. The fair value of these items was
determined to be £402,000.
33. Related party transactions
Group
Transactions with Joint Venture - Compound Semiconductor Centre Limited
CSC was formed on 9 July 2015 as a joint venture between IQE and Cardiff University. On 22 September 2023, IQE
acquired the 50% shareholding of Cardiff University increasing the Group’s equity ownership in CSC to 100%. The
disclosure below relates to the transactions between IQE and CSC in the period prior to acquisition of CSC on 22
September 2023.
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. Up to the date of acquisition, the CSC leased this space from the
Group for £84,000 (2022: £115,000) and procured certain administrative support services from the Group for £171,000
(2022: £235,000). As part of the administrative support services provided to CSC the Group procured goods and
services, recharged to CSC at cost, totalling £3,117,000 (2022: £4,031,000).
CSC entered into an agreement with the Group following its formation that conveyed to the group the right to use
the assets of the joint venture for a minimum period which had been extended to 31 March 2024. 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 CSC’s assets totalled £4,818,000 (2022: £6,822,000) up to the date of acquisition.
At 31 December 2022, an amount of £137,000 was owed from the CSC.
In the Group’s balance sheet at 31 December 2022, ‘A’ Preference Shares with a nominal value of £8,800,000 were included
in financial assets at an amortised cost of £nil and the Group had a shareholder loan of £244,000 due from CSC.
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
157
157
Financial Statements
Notes to the financial statements continued
for the year ended 31 December 2023
33. Related party transactions continued
Company
Transactions with Group Companies
2023
IQE (Europe) Limited
IQE Silicon Compounds Limited
Nanogan Limited
Wafer Technology International 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 Limited
CSDC Private Limited
Compound Semiconductor Centre
Limited
Income
£’000
842
1,548
–
–
244
–
874
4,084
–
–
86
50
1
–
Expense
£’000
(145)
–
–
–
(20)
–
(12)
(3)
–
–
–
–
–
–
Trade
Receivable
£’000
598
4,429
–
–
190
–
620
4,546
–
–
68
331
–
–
Trade
Payable
£’000
(194)
(102)
–
–
–
–
(45)
(1)
–
–
–
–
–
–
Loan
Receivable
£’000
7,036
41,206
–
–
–
9,447
108,471
–
64
–
–
–
–
–
Loan
Payable
£’000
–
–
(1,750)
–
(2,874)
–
–
(10,055)
–
(19,100)
(8,598)
–
–
–
8
–
6
–
251
–
IQE plc has a fully impaired loan receivable of £7,794,000 (2022: £9,232,000) due from MBE Technology Pte Limited.
IQE plc has a fully impaired loan receivable of £7,714,000 (2022: £8,337,000) due from CSDC Private Limited.
IQE plc has recognised a reversal of expected credit loss of £6,814,000 (2022: £15,494,000 charge) in respect of loan
receivables from Group companies. IQE plc has recognised a total expected credit loss of £13,794,000 (2022:
£20,608,000).
2022
IQE (Europe) Limited
IQE Silicon Compounds Limited
Nanogan Limited
Wafer Technology International 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 Limited
CSDC Private Limited
Income
£’000
734
913
–
9,263
230
–
673
3,653
–
–
84
21
13
–
Expense
£’000
(106)
–
–
–
(51)
–
(54)
(3,237)
–
–
–
–
–
–
Trade
Receivable
£’000
Trade
Payable
£’000
Loan
Receivable
£’000
597
1,012
–
253
–
–
564
3,635
–
–
69
–
–
–
(217)
(49)
–
–
–
–
(46)
(5)
–
–
–
–
–
–
8,224
25,329
–
–
–
8,987
114,364
–
38
–
–
–
–
–
Loan
Payable
£’000
–
–
(1,750)
–
(1,936)
–
–
(4,588)
–
(19,268)
(7,526)
–
–
–
34. Commitments
The Group had capital commitments at 31 December 2023 of £553,000 (2022: £1,740,000).
158
158
IQE Annual Report and Accounts 2023
IQE Annual Report and Accounts 2023
Glossary
Glossary
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
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++
Compound materials on Silicon
CMD
CVD
Capital Markets Day
Chemical Vapour Deposition. IQE’s technique for making Advanced Silicon/Group IV
epiwafers, characterised by using compound sources flowed across a hot wafer
where they are “cracked” (reacted) to get the desired material
Device structure
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
Dilute Nitride
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
Epitaxy (epitaxial
growth)
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
InP
Gallium Arsenide
Gallium Nitride
Gallium Antimonide
Germanium
Indium Phosphide
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™
A template technology developed by IQE for RF filters and other applications requiring
low-resistance buried electrodes
IQGeVCSEL 150™
A technology developed by IQE for 6” VCSELs on Germanium
IQDN-VCSEL
A technology developed by IQE for the growth of long wavelength (> 1300 nm) VCSELs
on GaAs substrates
IR
LiDAR
MBE
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 pressure (known as ultra-high vacuum) which is comparable
to that of outer space
IQE Annual Report and Accounts 2023
159
Other Information Glossary continued
MIMO
MOCVD
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 that are flowed across a hot wafer where they are “cracked”
(reacted) to get the desired material. MOCVD occurs at much higher pressures
than MBE and also goes by the name MOVPE (Metal Organic Vapour Phase Epitaxy)
OEM
Original equipment manufacturer
Opto-electronic
device
A device or structure in which light and electricity interact to produce, detect
or manipulate light
PHEMT
Pseudomorphic High Electron Mobility Transistor. A commonly used device
for high-speed switching for wireless communications
Reactor
The equipment used to produce epitaxial layers on a substrate
RGB
RF
Red, Green, Blue emitter technology (LED) for display applications
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
WiFi 6
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
Sixth generation of wireless local area networking technologies characterised by
improved performance characteristics
3D Sensing
Three-dimensional depth sensing technology which is enabled by IQE’s VCSELs
5G
5th generation mobile network designed to provide enhanced connectivity
and higher speeds
160
IQE Annual Report and Accounts 2023
Investor information
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
Numis Securities
45 Gresham Street
London EC2V 7BF
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 2023
Loss per share: (3.28p)
)
P
B
G
(
e
c
i
r
p
e
r
a
h
S
60
55
50
45
40
35
30
25
20
15
10
Jan-23
Apr-23
Jul-23
Oct-23
Dec-23
IQE Annual Report and Accounts 2023
161
Other Information
162
IQE Annual Report and Accounts 2023
This report is printed on genYous digital uncoated paper which is derived from sustainable sources.
Manufactured at a paper mill registered to the Environmental Management System ISO 14001 and Forest
Stewardship Council® chain of custody certified.
Printed by Principal Colour.
Principal Colour are ISO 14001 certified, Alcohol Free and FSC® Chain of Custody certified.
Consultancy and design by Black Sun Global
www.blacksun-global.com
I
Q
E
p
l
c
–
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
2
3
Pascal Close
St Mellons
Cardiff, CF3 0LW
United Kingdom
www.iqep.com