TIDMAWE
RNS Number : 0162A
Alphawave IP Group PLC
19 May 2023
ALPHAWAVE IP GROUP PLC
Company Number 13073661
ALPHAWAVE SEMI
AUDITED RESULTS FOR THE YEARED 31 DECEMBER 2022
-- Invested US$439m ([1]) of cash in the acquisitions of
Precise-ITC, OpenFive and Banias Labs to extend and expand
technology leadership in connectivity silicon technology.
-- Technology leadership and product portfolio underpin broader
customer base of 80 (FY 2021:20)
-- 28 design wins with two in 3nm; 75% of Licence and NRE
bookings from North American customers (FY 2021: 21%)
-- Backlog excluding royalties of US$365m (FY 2021: US$169m)
-- Total headcount of 695 (FY 2021: 149)
-- Revenue doubled year-on-year to US$185m reflecting 33%
organic growth and US$66m revenue [2] from the acquisitions of
Precise-ITC and OpenFive
-- Operating profit of US$38m; US$36m in FY 2021
-- Adjusted EBITDA(2) of US$47m and adjusted EBITDA(2) margin of
25% compared with US$52m and 58% in FY 2021
-- EBITDA(3) of US$49m above US$39m in FY 2021
-- Loss after tax of US$1m compared to a profit after tax of US$9m in FY 2021
-- Cash flow from operating activities before tax of US$8m (FY
2021: US$27m) including US$28m of deferred compensation payments
related to the acquisitions of Precise-ITC and Banias Labs
-- Net debt of US$24m following successful debt raise of US$210m
to fund the acquisition of Banias Labs
-- Guidance unchanged
LONDON, United Kingdom and TORONTO, Ontario, Canada 19 May 2023
- Alphawave IP Group plc (LSE: AWE, the "Company"
or "Alphawave Semi"), a global leader in high-speed connectivity
for the world's technology infrastructure, has published its
results for the year ended 31 December 2022.
The Company has applied to the FCA for the restoration of its
ordinary shares to the standard listing segment of the Official
List of the FCA and to trading on the Main Market of the London
Stock Exchange. A further announcement in this respect will be made
in due course.
Financial Summary and APMs ([3]) FY 2022 FY 2021 Change
- US$m
======================================= ======== ======== =======
Licence and NRE 137.6 89.9 53%
Royalties and silicon 47.8 - nm
Total Revenue 185.4 89.9 106%
Operating profit 37.6 36.0 4%
Operating margin 20% 40%
EBITDA(3) 49.3 39.2 26%
EBITDA margin 27% 44%
Adjusted EBITDA(2) 46.8 51.8 -10%
Adjusted EBITDA margin 25% 58%
Profit/(Loss) after tax (1.1) 9.4 nm
Profit after tax margin nm 10%
Pre-tax operating cash flow 7.8 26.5 -71%
Cash and cash equivalents 186.2 501.0 -63%
Net cash/(debt) balance (24.0) 501.0 nm
Bookings ([4]) and Design Win FY 2022 FY 2021 Change
Activity - US$m
======================================= ======== ======== =======
Licence and related 131.3 72.9 80%
Royalties and silicon ([5]) 96.8 24.0 304%
New Bookings (excluding VeriSilicon
and WiseWave multi-year subscription
licences) 228.1 96.9 135%
WiseWave and VeriSilicon multi-year - 147.8 nm
subscription licences
Additional design win activity
- FSA drawdowns and China re-sale
licences ([6]) 23.2 3.9 494%
Number of revenue generating
end-customers 80 20
Due to rounding, numbers presented in the table may not add up
to the totals provided and percentages may not precisely reflect
the absolutely figures. 'nm', where referenced, means 'not
meaningful'.
Tony Pialis, President and Chief Executive Officer of Alphawave
Semi, said: "In 2022 we delivered another set of strong results,
doubling our revenue year-on-year while investing to support our
growing pipeline and future revenue growth. During the year, we
welcomed almost 400 employees from the acquisitions of Precise-ITC,
OpenFive and Banias Labs. In 2023, we will consolidate our vision
for the business and will set the foundations from which we can
continue to deliver growth."
John Lofton Holt, Executive Chairman of Alphawave Semi, added:
"2022 has been an important year for Alphawave Semi. We made a
substantial investment in three acquisitions and made great
progress on our vision for the business. Our leading connectivity
technology combined with the continued strong execution of our team
gives us confidence in the long-term potential of our
business."
FY 2022 Results Highlights
-- FY 2022 revenues of US$185.4m, representing 106% growth
year-on-year. The acquisitions of Precise-ITC and OpenFive
contributed US$66.1m in revenue [7] in FY 2022. Organic revenue
growth in FY 2022 was 33%
-- WiseWave revenues of US$37.5m (FY 2021: US$29.8m) (excluding
re-seller revenue ([8]) ), of which US$31.1m (FY 2021: US$27.7m)
related to the multi-year subscription licence
-- Adjusted EBITDA(1) of US$46.8m and margin of 25% (FY 2021
US$51.8m and 58%), reflecting accelerated investment in R&D and
change in business mix including revenue from IP licences and
silicon
-- US$36.8m exchange gain due to the weakening of GBP against
USD on USD cash balances held at Alphawave IP Group plc level
denominated in GBP
-- M&A costs and professional fees of US$17.0m and share-based payment of US$15.7m
-- Cash flow from operating activities before tax in FY 2022 was
US$7.8m (FY 2021: US$26.5m) including approximately US$6m one-time
payment of M&A related expenses and professional fees and
US$28.2m of deferred compensation payments related to the
acquisitions of Precise-ITC and Banias Labs
-- Cash and cash equivalents of US$186.2m. Net debt of US$24.0m
Business and Technology Highlights
-- In 2022, the Company invested approximately US$439m ([9]) of
cash in the acquisitions of Precise-ITC, OpenFive and Banias Labs,
consolidating our vision for Alphawave Semi
-- In October 2022, the Company announced a non-binding
agreement with a leading North American hyperscaler with sales
potentially ramping to over US$300 million
-- Alphawave Semi maintained its technology leadership with 28
design wins of which two were design wins in 3nm and two for
opto-electronic products targeting next-generation 800G ethernet
applications
-- The Company delivered silicon tapeouts for its
next-generation 224G, PCI-Express Gen6, HBM3 and UCIe interface IP
in both 5nm and 4nm processes. 224G, PCI-Express Gen6, CXL3.0, HBM3
and UCIe are next generation networking, memory and chiplet
interfaces that are critical for AI, server, storage and networking
devices deployed heavily by hyperscalers.
-- Alphawave Semi continued to expand its IP product portfolio
to over 220 IPs at the end of 2022
-- During 2022, the Company expanded its revenue-generating
end-customer base to 80 (FY 2021: 20 customers; H2 2022: 28
customers). 53% of FY 2022 revenue was from existing customers.
-- Continued to build sales and R&D capabilities with new
offices in San Jose, US, and Ottawa, Canada. Geographical footprint
expanded into India and Israel through acquisitions
-- Closing headcount increased by 546 people globally, bringing
the total headcount to 695 (2021: 149), of which 376 employees
joined through the acquisitions of Precise-ITC, OpenFive, and
Banias Labs
Outlook
-- Alphawave Semi reiterates its FY 2023, mid-term and long-term
outlook communicated at the Capital Markets Day on 13 January
2023
-- The outlook for 2023 remains unchanged. Alphawave Semi
expects 2023 revenue of US$340m to US$360m and adjusted EBITDA of
approximately US$87m (or approximately 25% of revenue), which is at
the mid-point of the revenue guidance range
About Alphawave Semi (LSE: AWE)
Alphawave Semi is a global leader in high-speed connectivity for
the world's technology infrastructure. Faced with the exponential
growth of data, Alphawave Semi's technology services a critical
need: enabling data to travel faster, more reliably and with higher
performance at lower power. We are a vertically integrated
semiconductor company, and our IP, custom silicon, and connectivity
products are deployed by global tier-one customers in data centers,
compute, networking, AI, 5G, autonomous vehicles, and storage.
Founded in 2017 by an expert technical team with a proven track
record in licensing semiconductor IP, our mission is to accelerate
the critical data infrastructure at the heart of our digital world.
To find out more about Alphawave Semi, visit: awavesemi.com.
Alphawave Semi and the Alphawave Semi logo are trademarks of
Alphawave IP Group plc. All rights reserved.
Contact Information
Alphawave Semi John Lofton Holt, Executive ir@awavesemi.com
Chairman +44 (0) 20 7717 5877
Jose Cano, Head of IR
---------------- ---------------------------- -----------------------------
Brunswick Group Simone Selzer alphawave@brunswickgroup.com
Sarah West +44 (0) 20 7404 5959
---------------- ---------------------------- -----------------------------
Gravitate PR Lisette Paras alphawave@gravitatepr.com
Siddarth Nigam +1 415 528 0468
================ ============================ =============================
Cautionary statement regarding forward-looking statements
This document may contain forward-looking statements which are
made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. You can
sometimes, but not always, identify these statements by the use of
a date in the future or such words as "will", "anticipate",
"estimate", "expect", "project", "intend", "plan", "should", "may",
"assume" and other similar words. By their nature, forward-looking
statements are inherently predictive and speculative and involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. You should not place
undue reliance on these forward-looking statements, which are not a
guarantee of future performance and are subject to factors that
could cause our actual results to differ materially from those
expressed or implied by these statements. The Company undertakes no
obligation to update any forward-looking statements contained in
this document, whether as a result of new information, future
events or otherwise.
End Market Drivers Remain Strong
Against the backdrop of an uncertain economic environment,
digital infrastructure markets remained strong. Our core markets
continued to provide compelling opportunities for growth. For
example, in Q3 2022, the US cloud hyperscalers, Amazon, Google,
Meta and Microsoft, increased spending by 24% year-on-year and the
top three US cloud service providers had a combined market share of
66% ([10]) . Not surprisingly, the amount of data created,
captured, replicated and consumed each year is expected to more
than double in size from 2022 to 2026 ([11]) and we expect our
addressable market to grow at approximately 20% CAGR over the
2023-2026 period ([12]) .
Early in 2023, we saw the introduction of language-based AI
models like ChatGPT and Bard. Our business is well positioned to
benefit from the ongoing rollout of AI. As AI technologies become
more powerful, the demand for data will become even greater and,
more crucially, this makes data speeds, bandwidth, and latency
essential to the future of AI technology. Thousands of components,
wires, switches, ports and more are organised in data centres to
connect everything together. Improvements in these technologies
allow for faster data speeds and bandwidth.
Cloud, AI and software providers will also benefit from the
advantages of chiplet architecture and optimising silicon to their
specific requirements, which will provide multiple opportunities
for our custom silicon offering.
Our pipeline of customer opportunities reflects these trends.
Our customers continue to seek differentiation and enhanced
performance by transitioning faster to lower design nodes. Almost
two-thirds of our design wins in 2022 were in 7nm and 5nm
manufacturing processes, and we also had our first design win in
3nm in H1 2022. Alongside this, we continued to see hyperscale data
centre providers reducing reliance on networking ASIC vendors.
The ongoing constraints on the semiconductor supply chain and
the ubiquitous presence of semiconductors in our lives continue to
reinforce the importance of semiconductor technology on a global
scale. As the digital infrastructure continues to grow and makes
the transition to utilise leading and more efficient technologies,
we remain confident in the long-term outlook of the business.
FY 2022 Financial Performance Summary
At the end of 2022 backlog was US$364.5m representing a
significant increase year-on-year (FY 2021: US$168.6m). The
increase was partly driven by the backlog acquired with OpenFive
and Precise-ITC of US$168.3m of which over US$100m was in our
backlog as at the end of 2022.
New bookings excluding multi-year contracts in 2022 totalled
US$228.1m up 135% year-on-year (FY 2021: US$96.9m). Total bookings
were below US$244.7m in FY 2021. Licence and NRE bookings in 2022
were US$131.3m of which approximately three quarters came from
North American customers, a significantly larger contribution than
in the prior year (FY 2021: 21%). Royalties and silicon bookings in
2022 totalled US$96.8m, compared to US$24.0m in 2021. Over
three-quarters of these bookings relate to pre-existing custom
silicon designs in production for Chinese customers.
Revenue in 2022 was US$185.4m up 106% year-on-year. Excluding
the revenue contribution from OpenFive and Precise-ITC of US$66.1m
[13] , year-on-year revenue growth was 33%. During FY 2022, we
recognised revenue from 80 customers, compared to 20 customers in
FY 2021. Our FY 2022 revenue continued to be heavily weighted to
our core markets of data networking and cloud compute. 57% of
revenue in the period was generated from Chinese customers,
including the custom silicon business from the acquisition of
OpenFive. Revenue excluding China was US$80.7m up 72% year-on-year
(FY 2021: US$46.9m).
Gross margin in 2022 was 67% compared to 94% in 2021. The
decrease reflects the diversification of our business into custom
silicon development and silicon products. Through the acquisition
of OpenFive, we inherited a number of contracts with gross margins
below our Group targets.
The year-on-year increase in R&D, S&M and G&A
expenses was primarily due to the increase in our headcount from
149 employees at the end 2021 to 695 at the end 2022, together with
associated software tool costs which scale with our
R&D/engineering headcount. The increase of 546 full time
employees includes 376 employees who joined as part of the
acquisitions of OpenFive, Banias and Precise-ITC. In addition, we
invested in support functions and scaled our finance, HR, legal and
corporate marketing teams, reflecting the increased complexity and
the extended geographical footprint of the Group. In 2022 we
capitalised US$7.2m of R&D expenses related to the development
of our opto-electronics products (FY 2021: US$nil).
In 2022 we saw a credit of US$4.2m in other expenses due to the
US$36.8m of exchange gains which resulted from the strengthening of
USD against GBP, as the Company held a significant USD balance at
the Plc level, which is a GBP denominated entity. M&A and
professional costs in 2022 were US$17.0m related to the
acquisitions and the debt funding. Stock-based payment costs of
US$15.7m in 2022 reflect our increased headcount, equity grants
awarded to employees joining from OpenFive and Banias, as well as
significant one-time grants awarded to new members of the senior
management team who joined us in 2022.
Operating profit was therefore US$37.6m in 2022, up 4%
year-on-year. Operating margin in 2022 was 20%, significantly below
FY 2021 (FY 2021: 40%).
Adjusted EBITDA in 2022 was US$46.8m (25% margin) compared to
US$51.8m (58% margin) in 2021. The decrease in adjusted EBITDA
margin was expected and reflects the early stage of our migration
to a combined IP licensing and silicon model through our
acquisitions and the scaling of our engineering capabilities to
support our pipeline of opportunities.
Finance income in 2022 was US$1.7m, compared to US$0.3m in 2021.
The increase was largely driven by cash proceeds from IPO being
invested in interest-bearing accounts.
Finance expense in 2022 was US$3.6m, US$3.3m higher than in
2021. The increase was driven by interest associated with the
five-year term loan obtained in October 2022.
Share of the post-tax loss of equity-accounted joint ventures
was US$18.5m, compared to US$12.9m in 2021. At the end of 2022, the
Group owned 42.5% of WiseWave, a newly formed company established
in China in Q4 2021 to develop and sell silicon products
incorporating silicon IP licensed from the Group. The five-year
subscription licence agreement is being capitalised and amortised
over the life of the agreement by WiseWave.
Profit before tax in 2022 was US$17.2m compared to US$23.1m in
2021. Tax expense in 2022 was US$18.3m (FY 2021: US$13.7m), being
106% of profit before tax, or 36% after adjusting for the loss from
WiseWave and stock-based compensation expense, both of which are
not deductible for tax purposes. The Group incurred a loss after
tax in 2022 of US$1.1m, compared to a profit of US$9.4m in
2021.
Cash flow from operating activities before tax was US$7.8m
compared with US$26.5m in 2021. During the period we saw a cash
outflow from working capital of approximately US$43.2m. In 2022
there was a one-time payment of approximately US$6m relating to
M&A and professional fees. It also included a US$28.2m cash
outflow related to deferred compensation payable as part of the
acquisitions of Precise-ITC and Banias Labs which are classified as
compensation payments in lieu of share-based remuneration or
payments conditional on continued employment with the Group.
Excluding this last item, cash flow from operating activities
before tax in 2022 was US$36.0m.
In 2022, the Group generated a net cash outflow from operating
activities of US$12.1m, compared to a net cash inflow of US$18.9m
in 2021. Income tax paid in 2022 was US$19.9m, well above US$7.6m
paid in 2021. Capital expenditure during 2022 totalled US$15.5m
(US$2.2m in 2021), comprising US$4.2m of plant, property and
equipment and US$11.3m of intangibles. The increase in plant,
property and equipment was mainly due to purchases of lab and test
equipment as we ramp our own product development capabilities.
We closed the period with a cash and cash equivalents balance of
US$186.2m compared to US$501.0m at the end of 2021. During 2022 we
invested US$438.7m ([14]) of cash in the acquisitions of
Precise-ITC, OpenFive and Banias Labs. In October 2022 we acquired
new debt for an amount of approximately US$210m to finance the
acquisition of Banias Labs. As a result, at the end of 2022 we had
a net debt position of US$24.0m.
In 2022 we recognised aggregate goodwill of US$331.9m from the
acquisitions of Precise-ITC, OpenFive and Banias Labs.
Accrued revenue, where revenue recognition conditions are met
under IFRS 15 but we have not billed or collected any amount,
increased from US$31.7m at the end of 2021 to US$58.5m at the end
of 2022. This increase was a function of our revenue growth and the
timing of invoicing milestones on specific contracts, primarily for
our IP sales. WiseWave accounted for US$20.2m of our accrued
revenue balance at the end of 2022.
Investments in equity-accounted associate, namely the value of
the investment in WiseWave was reduced from US$9.4m in 2021 to
US$nil in 2022, as a result of equity accounting for losses at
WiseWave during the period. The value of the cumulative losses
incurred by WiseWave exceeds the cumulative value of our investment
into the business.
During 2022, current trade and other payables increased from
US$5.8m to US$83.1m. This increase was predominantly due to higher
purchasing levels as the business has scaled.
Deferred revenue liability, where we have invoiced or received
money for products or services where revenue recognition conditions
are not met, increased from US$12.7m at the end of 2021 to US$91.7m
at the end of 2022. This increase was due to the order intake for
custom silicon products where in some instances customers are
required to make advance payment ahead of silicon being shipped to
them.
Principal Risks and Uncertainties
The Group faces a number of risks and uncertainties that may
have an impact on our operations and performance. These risks and
uncertainties are regularly assessed by the Directors. The
principal risks and uncertainties affecting the Group are as
follows:
Risk Description
--------------------- ---------------------------------------------------------
Managing our We have a limited operating history and are growing
growth rapidly. If we do not manage our growth successfully,
fail to execute on our strategy, or fail to implement
or maintain governance and control measures, our
business may be adversely impacted. We have rapidly
expanded our headcount and the complexity of our
business and operations, both organically and through
acquisitions.
===================== =========================================================
Competition We seek to maintain our competitive advantage by
and failure being first to market with new IP as data speeds
to maintain increase and manufacturing sizes decrease. If these
our technology industry transitions do not materialise, or are
leadership slower than anticipated, our competitors may be
able to introduce competing IP which may diminish
our competitive advantage and selling prices. Our
ability to maintain our technology leadership is
further dependent on our ability to attract R&D
and engineering talent.
===================== =========================================================
Customer dependence Our products and technology target the data centre
and network infrastructure markets, where there
are a limited number of customers. Further, the
cost and complexity of developing semiconductors
targeted by our IP limits the number of our potential
addressable customers. In any reporting period,
a substantial part of our revenues may be attributable
to a small number of customers.
===================== =========================================================
Customer demand Demand for our technology is dependent on the continued
global growth in generation, storage and consumption
of data across our target markets, as well as the
increasing cost and complexity of designing and
manufacturing semiconductors. We may be impacted
by our customers' demand sensitivity to broader
economic and social conditions. Our potential customers
may seek to develop competitive IP or semiconductors
internally or acquire IP or semiconductors from
our competitors.
===================== =========================================================
Risks associated WiseWave is today an important element of our strategy
with WiseWave to monetise our IP in China and we are a significant
minority shareholder. We may be limited in our
ability to influence strategy, operational, legal,
commercial or financial matters. The Group and
WiseWave may also face regulatory risk in terms
of transfer of technology into China. There is
a risk that the bookings from WiseWave do not translate
into revenues and we are unable to realise the
full value of our investment on exiting the joint
venture.
===================== =========================================================
Dependence Our financial performance is highly dependent on
on licensing licensing revenues and we do not anticipate a material
revenue contribution from royalty revenues for some years.
If our customers delay or cancel their development
projects, fail to take their products to production
or those products are not successful, our royalty
revenues may be delayed, diminished or not materialise
===================== =========================================================
Reliance on We rely on the senior management team and our business
key personnel could be negatively impacted if we cannot retain
and ability and motivate our key employees. Our ability to
to attract grow the business is also dependent on attracting
talent talent, particularly in R&D and engineering, and
if we are unable to do so, our business may be
negatively impacted.
===================== =========================================================
External environment Semiconductors are becoming increasingly important
and events as countries and regions seek to guarantee supply
and build domestic supply chains, as well as restrict
outside access to their domestic technologies.
Our business could be impacted by the actions of
governments, political events or instability, or
changes in public policy in the countries in which
we operate. The current conflict in Ukraine potentially
has wide-ranging impacts, including global economic
instability, increased geopolitical tensions and
disruption to supply chains.
===================== =========================================================
IP protection We protect our technology through trade secrets,
and infringement contractual provisions, confidentiality agreements,
licences and other methods. A failure to maintain
and enforce our IP could impair our competitiveness
and adversely impact our business. If other companies
assert their IP rights against us, we may incur
significant costs and divert management and technical
resources in defending those claims. If we are
unsuccessful in defending those claims, or we are
obliged to indemnify our customers or partners
in any such claims, it could adversely impact our
business.
===================== =========================================================
Reliance on We rely on third-party semiconductor foundries,
third-party both as customers and as manufacturing partners
manufacturing to our customers. If foundries delay the introduction
foundries of new process nodes or customers choose not to
develop silicon on those process nodes, our ability
to license new IP and our selling prices may be
adversely impacted. By pursuing a vertically integrated
model and supplying silicon products, we are reliant
on the foundries' capacity for a portion of our
revenues and this reliance may increase as royalty
revenues become more material to us.
===================== =========================================================
Reliance on We rely heavily on IT systems to support our business
complex IT operations. The vast majority of our design tools,
systems software and IT system components are off-the-shelf
solutions and our business would be disrupted if
these components became unavailable. If our IT
systems were subject to disruption, for example
through malfunction or security breaches, we may
be prevented from developing our IP and fulfilling
our contracts with our customers.
--------------------- ---------------------------------------------------------
Letter from our Chair
Consolidating our vision for Alphawave Semi.
John Lofton Holt
Executive Chair
Dear shareholder,
2022 was our second year as a public listed company, a year
during which the business made significant progress towards
consolidating our vision to be a leading provider of connectivity
technology for digital infrastructure markets. In support of our
vision, we took the first steps towards a vertically integrated
business model with the acquisitions of Precise-ITC, OpenFive and
Banias Labs, as well as the announcement of a large non-binding
multi-year agreement with a leading North American hyperscaler.
To reflect the enhancement in our business model, on 13 January
2023 we announced the rebranding of our business to Alphawave Semi,
previously Alphawave IP. On that same day we also hosted our first
Capital Markets Day, during which we shared our vision and
long-term strategy with analysts and investors.
At our Capital Markets Day in January we outlined our new
accelerated strategy to implement the vision we have held since our
IPO in May 2021 - to become a vertically integrated semiconductor
company focused on delivering the world's most advanced
connectivity solutions. This accelerates our ambitions to provide
the world's leading connectivity solutions through IP, custom
silicon and silicon products. IP innovation, which has largely
driven our success to date, remains core to our business leadership
in each of these areas.
This has been a year of significant strategic progress, which
has embodied our purpose to create value for our stakeholders in
pursuit of our ambitions. Whilst we remain mindful of the
challenging global macro and geopolitical environment, we are well
positioned to continue the delivery of our strategic priorities in
2023 and beyond.
Financial performance
In 2022 we made a significant investment in future revenue
growth. We completed three acquisitions (Precise-ITC, OpenFive and
Banias Labs) and deployed US$439m of cash to realise our ambition
for Alphawave Semi. We also raised US$210m in debt to maintain a
strong balance sheet.
Bookings for the full year were US$228.1m. Excluding multi-year
contracts, FY 2022 bookings were above the prior year (FY 2021:
US$96.9m).
Alongside the growth in bookings, excluding multi-year
contracts, we delivered another year of robust revenue growth. We
delivered revenue of US$185.4m, up 106% year -- on-year, a
significant achievement for the business. Adjusted EBITDA was
US$46.8m, 10% below the prior year while adjusted EBITDA margin was
25%, significantly below 2021 (FY 2021: 58%). The decrease in
adjusted EBITDA margin was due to the expansion of the business
both organically and through acquisitions. EBITDA in 2022 was above
2021 at US$49.3m (FY 2021: US$39.2m).
People, culture and values
As we welcome the teams from Precise-ITC, OpenFive and Banias
Labs, the number of employees increased significantly from 149 to
almost 700 at the end of 2022. Our Vice President of Human
Resources, together with the leadership team, has worked hard to
welcome all new employees to the Group and ensure a smooth
integration.
Our culture and values inform the way we conduct our business,
ensuring we are mindful of the impact we have on society and the
environment, and that we build strong relationships with all our
stakeholders. They also form the foundations of our
innovation-driven ambitions to be a leading provider of
connectivity technology.
Our ongoing business success would not be possible without the
commitment and passion of all our employees, and on behalf of the
Board I would like to express our sincere gratitude for their hard
work during a particularly exceptional period of business
expansion.
Governance and oversight
In 2022 we continued to evolve our governance capabilities as
Michelle Senecal de Fonseca became the voice for employees at Board
level, working closely with our VP of Human Resources, Maia Jones.
We further enhanced our team with the appointment of Kim Clear as
our Company Secretary and Head of Governance, and Jose Cano as our
Global Head of Investor Relations.
Relationships with our stakeholders
As a company we seek to establish strong and responsible
relationships with customers, partners and the communities in which
we operate. Our values extend to the way we engage with our
stakeholders. As a result of the acquisition of OpenFive, we
welcomed new customers as well as new partners in the value chain -
such as test and assembly companies.
We contribute to society mainly by promoting diversity,
fostering the next wave of innovation and innovators and playing
our role in tackling climate change. We do this both through our
own activities and in collaboration with our customers and other
stakeholders, for shared success.
As a fabless business, i.e. we do not own any manufacturing
facilities, we collaborate with multiple stakeholders in the supply
chain, playing our role in promoting responsible business practices
(see Supply Chain section). As the business grows and matures we
will continue to enhance our policies and practices in this
area.
In 2022, we put the building blocks of our sustainability
strategy in place, identifying our core sustainability issues as
well as the management approach and reporting. In addition, early
in 2023, the Board approved the ESG Policy, setting the framework
for all sustainability-related activities in the Group (see ESG
section).
Simplifying our China go-to-market strategy
Since the Group launched its China go-to-market strategy in
2017, the geopolitical and macroeconomic situation has also had an
impact on our industry. This has resulted in significant changes to
the semiconductor industry. In 2022, in recognition of these
external changes, the Group announced two major simplifications to
its China strategy. First, Wise Road Capital significantly reduced
its ownership of Alphawave Semi shares and sold its investment to
large western institutional funds. This means that the Company no
longer has significant investments from any Chinese institutional
investors.
Second, we announced that we would make very little, if any,
investment in WiseWave (formerly called the China Product
Partnership) and that the Company would seek to sell its equity
stake in WiseWave over the next two years. With these changes to
the Group's go-to-market strategy in China, we will continue to
execute against the market opportunities in China in a simplified
way that respects the evolving geopolitical and macroeconomic
environment.
Outlook 2023 and beyond
On 13 January 2023, we hosted our first Capital Markets Day in
London. At the event, members of the management team shared their
views on our markets and the medium-term potential of our business.
We laid out our first medium-term financial model which targets
2025 revenue of US$500m and adjusted EBITDA margin of approximately
30%.
We are executing on our strategy, creating a leading
semiconductor business in high-speed connectivity, building on our
strengths and aiming to generate value for shareholders and other
stakeholders over the long term.
On 4 May 2023, the Company announced that the Board had agreed
with Daniel Aharoni that he would step down as CFO and as an
Executive Director of the Company following the publication of the
audited results of the Company for FY 2022. The Board has already
commenced the search for his successor. In the interim, Christian
Bowsher, Senior Director of Finance at Alphawave Semi, will serve
as acting CFO to support myself and Tony Pialis to enable an
orderly transition. Christian is an experienced member of Alphawave
Semi's finance organisation, and he will be further supported by
Raj Mahadevan, co-Founder and Senior Vice President of Operations,
who managed the finance function from 2017 to 2021. Daniel has been
a key part of our journey since our IPO in 2021 and during the
three transformational acquisitions we undertook in 2022. On behalf
of the Board, I would like to thank Daniel for his contributions
and wish him all the best for the future.
As a result, this Annual Report and the Financial Review are
signed off by the Chief Executive Officer of the Company, Tony
Pialis. The Primary Statements and Certification are also signed
off by Tony Pialis as a Director of the Company.
John Lofton Holt
Executive Chair
19 May 2023
CEO Q&A
Building a global provider of leading connectivity technology
for digital infrastructure.
Tony Pialis
President & Chief Executive Officer
Q. What would you highlight about the business performance in
2022?
2022 has been an important year for the Group. We have delivered
a strong set of results, doubling our revenue from 2021 while
investing in R&D. As a result, adjusted EBITDA and margin
decreased from 2021. Profit before tax in 2022 was also below 2021
at US$17.2m (FY 2021: US$23.1m).
Through organic development and M&A we have consolidated our
vision for the business. In 2022, we invested US$439m in the
acquisition of three companies, enabling the transition from an IP
business to a vertically integrated business. With an enhanced
product portfolio, we can further monetise our IP in the form of
custom silicon and other connectivity products, allowing us to gain
greater scale and enhance our competitive position.
The number of employees has also significantly increased, from
149 at the end of 2021 to almost 700. In 2022, we welcomed almost
400 employees from the acquisitions of Precise-ITC, OpenFive and
Banias Labs. In addition, we opened our second office in Canada,
Ottawa, and our first location in the US, San Jose.
The success of the business would not be possible without the
commitment and support of all our employees and I would like to
express my sincere gratitude for their hard work during this period
of accelerated business expansion.
Q. How do you see the digital infrastructure markets
evolving?
Against the backdrop of an uncertain economic environment,
digital infrastructure markets remained strong. Our core markets
continued to provide compelling opportunities for growth. For
example, in Q3 2022, the US cloud hyperscalers, Amazon, Google,
Meta and Microsoft, increased spending by 24% year-on-year and the
top three US cloud service providers had a combined market share of
66%(1) . Not surprisingly, the amount of data created, captured,
replicated and consumed each year is expected to more than double
in size from 2022 to 2026(2) and we expect our addressable market
to grow at approximately 20% CAGR over the 2023-2026 period(3)
.
Early in 2023, we saw the introduction of language-based AI
models like chatGPT and Bard. Our business is well positioned to
benefit from the ongoing rollout of AI. As AI technologies become
more powerful, the demand for data will become even greater and,
more crucially, this makes data speeds, bandwidth and latency
essential to the future of AI technology. Thousands of components,
wires, switches, ports and more are organised in data centres to
connect everything together. Improvements in these technologies
allow for faster data speeds and bandwidth.
Cloud, AI and software providers will also benefit from the
advantages of chiplet architecture and optimising silicon to their
specific requirements, which will provide multiple opportunities
for our custom silicon offering.
Our pipeline of customer opportunities reflects these trends.
Our customers continue to seek differentiation and enhanced
performance by transitioning faster to lower design nodes. Almost
two-thirds of our design wins in 2022 were in 7nm and 5nm
manufacturing processes, and we also had our first design win in
3nm in H1 2022. Alongside this, we continued to see hyperscale data
centre providers reducing reliance on networking ASIC vendors.
The ongoing constraints on the semiconductor supply chain and
the ubiquitous presence of semiconductors in our lives continue to
reinforce the importance of semiconductor technology on a global
scale. As the digital infrastructure continues to grow and makes
the transition to utilise leading and more efficient technologies,
we remain confident in the long-term outlook of the business.
Q. How do you see business in China evolving over time?
In 2022, revenue from China was US$105m or 57% of the total. The
increase in revenue from China was mainly driven by the multi-year
contracts with WiseWave and VeriSilicon and the custom silicon
revenue contribution from the acquisition of OpenFive. We expect a
decline in revenue from China over the longer term, which will be
mainly offset by revenue from North American customers.
China is an important market for the semiconductor industry and,
like many other companies, we seek to establish long -- term
commercial relationships with Chinese customers. The Group will
continue to comply with all applicable rules and regulations to
ensure we can create sustainable customer relationships in all
geographies.
Q. What did the acquisition of OpenFive bring?
With the acquisition of OpenFive we welcomed a team of over 300
employees with custom silicon expertise who have been working with
global customers over the past two decades. In line with our 'land
and expand' strategy, OpenFive substantially expands our customer
base and addressable market in a market expected to grow 16% CAGR
over the 2023-2026 period(3) .
This acquisition also enhances and expands our product
portfolio, doubling our IP portfolio, including, amongst others,
storage and die-to-die connectivity IP. As a combined group we can
now bundle our IP and expertise to win larger and more complex
custom silicon opportunities at leading -- edge process nodes.
Q. What was the strategic rationale to acquire Banias Labs?
Banias Labs' coherent DSP was designed with data centres in
mind. Combined with Alphawave Semi's industry-leading analog
components, it expands our addressable market into opto --
electronics products, which are expected to grow 36% CAGR over the
2023-2026 period(3) . Alongside this acquisition we signed a
non-binding multi -- year agreement with a leading North American
hyperscaler. With this framework agreement, we have an opportunity
to develop a product roadmap and ship at least US$300m worth of
products over the next several years with the added potential to
grow significantly beyond this. The framework agreement reflects
the synergies of our vertically integrated business model, with the
potential to scale our revenue and cash flow streams.
Q. What are the main sustainability priorities for Alphawave
Semi?
In early 2023, the Board approved our ESG Policy, which puts our
people, business ethics, the advancement of technology, and the
environment at the centre of our business model.
As a provider of leading connectivity technology, our products
contribute towards the deployment of a more efficient digital
infrastructure, enabling the transmission of data faster, more
efficiently and consuming less energy. Our commitment to
sustainability extends to our ongoing operations, as we seek to
maintain high standards of business conduct across our value
chain.
In 2022, we enhanced and expanded our sustainability reporting
(see ESG section) and we will continue to do so over the coming
years.
Q. What's next for Alphawave Semi? Is the Group considering
further acquisitions?
During 2022, we invested a substantial amount of capital in the
expansion of the business. In 2023, we will consolidate and fully
embed the acquired businesses.
Despite an uncertain macro environment and challenging financial
markets, our customers continue to invest in leading technology.
This investment provides a solid foundation from which we seek to
create long-term value for our shareholders and other stakeholders.
I look forward to the future with confidence.
1. Synergy Research Group (srgresearch.com) https://www.srgresearch.com/articles/q3-cloud-spending-up-over-11-billion-from-2021-despite-major-headwinds-google-increases-its-market-share.
2. The Data Center Journey, From Central Utility To Center Of
The Universe (semiengineering.com). Source Statista
https://semiengineering.com/the-data-center-journey-from-central-utility-to-center-of-the-universe/.
3. Semico Research Corporation, December 2022, IPNest and LightCounting.
ESG
Our People
Context
In 2022, the Human Resources (HR) function played an important
role in support of our growth strategy, enabling continued hiring
and the integration of over 540 new employees, of which almost 400
came from business acquisitions.
As a result, our total employee closing headcount grew from 149
in 2021(1) to 695 as of 31 December 2022.
Supporting this level of business expansion while ensuring the
wellbeing of all our employees was a key priority. For this purpose
we hired three new employees in the HR team.
The HR team remains focused on supporting the successful
execution of our business strategy, while creating an inclusive
work environment in which innovation and innovators can thrive.
Management approach
Responsibility for our people sits with the Vice President Human
Resources (HR). She is supported in this role by the wider HR team,
who focus on:
-- the application of human resource policies, tailored to
reflect local legal requirements, business priorities and labour
markets;
-- a Code of Ethics and Business Conduct, which sets out the
required basic standards guiding our behaviour, including in
relation to labour and human rights;
-- talent planning and development;
-- diversity and inclusion to facilitate an environment in which
different perspectives are valued;
-- delivering employee engagement and communication strategies to support business objectives;
-- enabling knowledge sharing and collaboration;
-- caring for the wellbeing of our employees and creating a supportive environment; and
-- rewarding high performance through effective and targeted
compensation and benefits programmes that enable our employees to
share in the value they create.
Our people are our most important asset and a key component of
our success as a company. We seek to create an entrepreneurial and
dynamic culture, where the best in our sector want to work and
develop their careers in advanced technologies. We have built our
company of the foundations of diversity and inclusion, where our
employees can share their ideas and concerns.
Our workspaces aim to offer our employees the highest standard
of safety, comfort, technology and accessibility, with additional
measures to ensure employees can successfully work remotely as
required. In 2022, we opened new offices in Ottawa, Canada, and in
San Jose, US. In December 2022, we began the refurbishment of our
offices in Pune, India.
Our employees are mostly located in North America (Canada and
the US), India and Israel. How we treat our employees and how our
employees engage with each other impacts not only our business, but
our stakeholders and the communities in which we operate.
We support internationally acclaimed human rights, including
labour rights such as freedom of association, and aim to ensure
that our employees benefit from excellent working conditions,
across all geographies.
The management team interacts daily with all employees and
operates a dedicated HR function at its key sites. Management has
implemented employee policies and procedures that are appropriate
for the size of the Company and meet the requirements of applicable
local legislation.
Our goal, reflected in our policies, is that our employees can
openly communicate and share any ideas and concerns with management
regarding working conditions and management practices without fear
of discrimination, reprisal, intimidation or harassment. The
Company has in place a formal grievance escalation procedure which
is covered in the Workplace Violence and Harassment Policy as well
as in the Code of Ethics and Business Conduct (see policies at
https://awavesemi.com/company/esg/).
1. FY 2022 and FY 2021 headcount numbers throughout the report
exclude interns. In FY 2021 there were five interns who were
previously reported as R&D headcount.
Diversity
Total employees gender diversity
Male | 80%
Female | 20%
Senior management gender diversity
Male | 92%
Female | 8%
Board gender diversity
Male | 60%
Female | 40%
Interns gender diversity
Male | 77%
Female | 23%
Number of employees
FY 2022 Female Male Total
--------------------- ------ ---- -----
Board 4 6 10
Total employees 141 554 695
Senior management(1) 1 11 12
--------------------- ------ ---- -----
FY 2021 Female Male Total
--------------------- ------ ---- -----
Board 4 6 10
Total employees 21 128 149
Senior management(1) - 5 5
--------------------- ------ ---- -----
1. Senior management diversity reflects the composition of the
leadership team, including the CEO and the Executive Chair.
Number of employees (closing)
695
FY 2021: 149
Employee turnover
10%
FY 2021: 7%
Employees based outside of North America
379
55% of total number of employees
Performance
Our Equal Opportunities and Dignity at Work Policy (see
https://awavesemi.com/wp-content/uploads/2023/04/Equal-Opportunities-and-Dignity-at-Work-Policy-v2.pdf)
stresses the value and importance of diversity in the workplace and
highlights our strict stance against discrimination, harassment or
bullying in the workplace.
We respect and uphold internationally proclaimed human rights
principles (universal declaration of human rights) and in 2022 (the
first year after our IPO) we put in place an Anti-Slavery and Human
Trafficking Policy, which applies to both employees and others
through whom the Company conducts business. The Company may perform
investigations and audits to verify that business is being
conducted in compliance with this policy. For more information see
https://awavesemi.com/wp-content/uploads/2022/10/policy-against-trafficking-of-persons-and-slavery.pdf.
Disclosure regarding employment of disabled persons
In accordance with our Equal Opportunities and Dignity at Work
Policy, we give full and fair consideration to applications for
employment made by disabled persons, having regard to their
aptitudes and abilities. We remain committed to any employees who
become disabled during their time with us, ensuring they receive
the support and training they may require. Promotion and
development opportunities are provided for all employees without
discrimination. All these topics are covered in our Equal
Opportunities and Dignity at Work Policy and Alphawave Semi
Accessibility Plan (see all People-related policies at
https://awavesemi.com/company/esg/).
Key issues/initiatives
Employee wellbeing
The Company has the wellbeing of all its employees at heart.
During 2022, our employees continued to work following a hybrid
model, working remotely and in our offices.
We put in place multiple initiatives and activities to make the
most of the time our employees spend at our offices, creating
opportunities for social interaction and promoting a healthy and
supportive environment.
The Company has in place a Right to Disconnect Policy
(https://awavesemi.com/wp-content/uploads/2023/04/The-Right-to-Disconnect-Policy-2022.pdf)
which recognises that every employee has the right to, and should,
disconnect from work outside of their normal working hours unless
there is an emergency or agreement to do so, for example while 'on
call'.
Talent identification and recruitment
We believe our employees are our best ambassadors and that is
why the Company has an internal referral programme in place.
Employees who refer successful candidates receive a reward. In
parallel, we have social media campaigns targeting specific skills
and roles.
Employee learning and development
Facilitating learning and sharing across the organisation are
key aspects of employee development. Our in-house experts have a
wealth of knowledge and experience. Alphawave University is an
internal programme that aims to give employees the opportunity to
learn different aspects of our Company and its technology. The
programme consists of regular sessions where a range of technical
and non-technical topics are discussed. Presenters are mostly
members of the management team and the Board.
The Company has an employee education programme in place which
reimburses employees upon completing relevant courses successfully.
Employees identify their learning and development needs on a
regular basis (both technical and non-technical) and agree these
with their line manager.
Leadership development
In 2022, we introduced a new leadership mentor programme in
which Board members are paired up with high -- potential leaders in
the organisation. The programme consists of monthly meetings
covering a range of topics most relevant to each individual.
We believe this is a great way to leverage the experience and
expertise of our Board to support the development of the next wave
of leaders.
Diversity and inclusion
The majority of our independent Board members are women and 20%
of our employees are female.
We closely monitor our salary systems, regular reviews and
processes, which have been designed to avoid any gender-based
discrimination.
Alphawave Semi is not legally required to submit the Gender Pay
Gap data as it does not have the minimum required number of
employees in the UK. The Company has a Diversity and Inclusion
Policy in place which is available on our website at
https://awavesemi.com/wp-content/uploads/2023/04/Equal-Opportunities-and-Dignity-at-Work-Policy-v2.pdf.
Alphawave University - A roundtable discussion with Susan
Buttsworth
Our Non-Executive Director (NED) Susan Buttsworth was the main
speaker in a virtual meeting with employees, part of the Alphawave
University programme. As well as presenting how she became a Board
member, Susan also explained the role of NEDs and how it ties in
with what employees do. This session was extremely well attended
and employees had a chance to ask questions and engage in a lively
discussion with Susan.
Internship programme
Alphawave Semi has internship programmes in Canada and India,
the two countries with the highest number of employees. As of 31
December 2022, there were 47 interns in the Company.
In Canada, we welcome interns from the universities of Toronto
and Ottawa and the programme runs for a period of twelve to 16
months. As of 31 December 2022, there were ten interns in Canada,
of which three were female.
The programme seeks to encourage the next generation of
engineers and innovators, giving them an insight into the wide
range of engineering careers and illustrating the valuable
contribution they can make to the advancement of technology.
The main objective of our internship programme in India is to
identify high potential students in their final semester or year of
their undergraduate or masters degree, with a view to future
employment within the Company. As of 31 December 2022, there were
37 interns in India. Around 40% of the existing engineering
employees in India joined the Company through this programme. The
programme engages with universities such as KLE Tech University,
University of Burdwan and CVR College of Engineering in Hyderabad.
Students come from different socio-economic backgrounds and
approximately 22% of the 2022 interns were female.
Welcoming the teams of Precise-ITC, OpenFive and Banias Labs
In 2022, we welcomed almost 400 new employees to the Company as
a result of the acquisitions of Precise-ITC, OpenFive and Banias
Labs. Precise -- ITC employees are based in Ottawa, Canada. The
team from OpenFive is primarily located in Bangalore and Pune,
India and the team from Banias is based near Tel Aviv, Israel. The
challenges of ensuring the smooth integration of such a high number
of employees were somewhat eased by the lack of geographical
overlap.
The successful integration effort of all our new employees was
one of the key achievements of the HR team in 2022.
Reward and recognition
We offer market-competitive pay and employee benefits, along
with opportunities for individual and team recognition, all within
a supportive working environment. We regularly benchmark our pay
and benefits against the employment markets in which we
operate.
This includes an in-depth analysis of the total compensation
offered by our direct competitors, both global and local, to ensure
that our offering remains competitive. This includes a range of
other non-salary benefits and work/life balance.
In 2022, we introduced best-in -- class employee benefits
prioritising employee health and wellbeing in Canada, the UK and
India (such as extended health insurance benefits and access to
mental health support). We are planning to roll out similar
benefits in the US and Israel in 2023.
Our compensation programmes include long-term share and short --
term cash-based bonus plans that allow us to differentiate levels
of reward, recognising critical skills and performance levels. In
early 2023, the Company introduced an enhanced performance
appraisal process with clear objectives across the new businesses
and aligned with the overall Company objectives agreed by the
management team.
The majority of our employees participate in our long-term
incentive programme to engender a shared sense of ownership. The
majority of the hires we made in FY 2022 were given equity
incentivisation through our long -- term employee share
programme.
In December 2022, our shareholders approved an amendment to the
dilution limits in our Long-Term Incentive Plan (the 'Share Plan'),
by removing the separate 5% dilution limit for discretionary
awards, such that all awards granted under the Share Plan are
subject to a 10% dilution limit in any five-year period, with no
separate limit for discretionary awards. This will ensure we can
continue to issue awards to employees under the Share Plan in the
ordinary course, which in turn helps us maintain innovation and
growth for the long -- term benefit of our shareholders.
Employee engagement and communication strategies
We encourage ongoing employee engagement and communication
through town halls, employee forums and local events with the
participation of the senior management team. We keep employees
updated on the strategic progress of the Company, as well as
financial results and key areas of strategic focus for the
business.
In August 2022, we undertook our first employee survey, which
was conducted by Best Places to Work in the US, Canada and the UK.
Employees in India and Israel joined the Company after the first
survey took place, through the acquisitions of OpenFive and Banias
Labs (September and October 2022, respectively).
The response rate was 80% and the feedback from our employees
was extremely positive. Amongst some of the positive messages, our
employees trust the leadership team and are willing to go the extra
mile to get the job done.
We have also identified that employees would like to keep
informed on a more regular basis about important Company issues and
changes, as well as continue to enhance work/life balance and
development programmes.
The results of the survey were presented back to the Board and
employees, and have informed changes to, for example, the frequency
and content of our internal communications.
The Company is now certified as a Great Place to Work(R) in
Canada and the US. We currently do not have the minimum number of
employees required in the UK to be certified.
The CEO has regularly appeared in virtual meetings to all
employees, providing a summary of business performance, sharing his
views, and addressing questions on other topics. In those virtual
meetings, the CEO welcomed employees from Precise-ITC, OpenFive and
Banias Labs.
Michelle Senecal de Fonseca was appointed in 2022 as the Board's
designated Non-Executive Director representative for workforce
engagement.
Forward focus areas in 2023
-- Rollout of best-in-class employee benefits in the US and Israel.
-- Extend annual employee survey to all new locations.
-- Introduction of an enhanced performance appraisal process.
-- Rolling out enhanced HR systems across the Company.
Alphawave University - Machine learning with our CTO, Tony Chan
Carusone
During the talk, our Chief Technology Officer, Tony Chan
Carusone, explored how machine learning is already being applied to
some of our most challenging optimisation problems. The call was
well attended and employees raised interesting questions on the
impact of machine learning on the long-term potential for the
business as well as to their daily activities.
Environmental Responsibility
Context
Our connectivity technology contributes towards the development
of a more efficient digital infrastructure.
Although fabless, we are making ongoing efforts to minimise our
carbon footprint, which has significantly changed in 2022 following
a period of rapid business expansion.
Management approach
We operate responsible practices within our own business.
Following the expansion of our business into custom silicon with
the acquisition of OpenFive in September 2022, we are seeking to
promote them across our supply chain.
Responsibility for environmental performance sits with the
Board. We govern our environmental responsibility through the
application of the ESG Policy which was approved in early 2023 and
addresses our key priorities. The Company is committed to carbon
neutrality.
Performance
Metrics and targets
For the second consecutive year, the Company appointed Carbon
Footprint Ltd, a carbon and energy management company, to
independently assess its greenhouse gas (GHG) emissions in
accordance with the UK Government's 'Environmental Reporting
Guidelines: Including Streamlined Energy and Carbon Reporting
Guidance'. The GHG emissions have been assessed following the ISO
14064-1:2018 standard using the 2021 emission conversion factors
published by Department for Environment, Food and Rural Affairs and
the Department for Business, Energy and Industrial Strategy.
We use Scope 1, Scope 2 and partial Scope 3 emissions as our
metrics. In addition, we use the intensity ratio per employee as
defined in the table below. We also consider ESG ratings that
include climate-related risk management indicators.
The assessment follows the location -- based approach for
assessing Scope 2 emissions from electricity usage. The financial
control approach has been used.
The table below summarises the GHG emissions for the 2022
reporting year. Due to the recent expansion of the business FY 2022
emissions cannot be set as the baseline for the Group. For FY 2022,
the scope includes UK and non-UK operations, including India,
Canada and the US. The emissions from our acquisition of Banias
Labs, based in Israel, have not been included as the acquisition
closed late in the year. The 2022 baseline includes annualised
figures for those locations in scope, including those which we
acquired through OpenFive on September 2022. Scope 1 includes
emissions associated with gas consumption. Scope 2 includes
emissions associated with electricity consumption. Scope 3 includes
those emissions associated with business travel and also includes
electricity consumption attributable to our utilisation of servers
within our third -- party data centre provider.
As a fabless semiconductor company we have a low carbon
footprint relative to companies in other segments of the value
chain. Alongside the benefit our products bring to the overall
energy consumption in digital infrastructure applications (such as
data centres, 5G base stations and artificial intelligence) we are
committed to minimising and reducing our carbon footprint.
Baseline Baseline
Activity year 2021 year 2022
--------------------------------------------------------- ---------- ----------
In metric tonnes CO(2) e
Total Scope 1 emissions (natural gas) 14.18 208.86
Total Scope 2 emissions (electricity consumption) 6.33 341.49
Total Scope 3 emissions (transmissions and distribution,
non-controlled electricity, hotel stays, homeworkers,
well to tank, flights, hire car, taxi and grey
fleet travel) 45.33 601.67
--------------------------------------------------------- ---------- ----------
Total gross (Scope 1, 2 & 3) location-based
emissions 65.84 1,152.02
--------------------------------------------------------- ---------- ----------
Intensity ratios
tCO(2) e (gross Scope 1, 2 & 3) per employee 0.49 1.78
tCO(2) e (gross Scope 1, 2 & 3) per US$m revenue(1) 0.73 nm
--------------------------------------------------------- ---------- ----------
Underlying energy consumption (kWh)
--------------------------------------------------------- ---------- ----------
Total global energy consumed 285,414 2,618,460
--------------------------------------------------------- ---------- ----------
Total UK energy consumed(2) 273 na
--------------------------------------------------------- ---------- ----------
UK-based emissions 0.1% nm
--------------------------------------------------------- ---------- ----------
UK-based energy consumption 0.1% nm
--------------------------------------------------------- ---------- ----------
1. tCO(2) e (gross Scope 1, 2 & 3) per US$m revenue reported
as nm in 2022. Group FY 2022 revenue includes revenue from the
acquisition of OpenFive from 31 August 2022 (closing date) but FY
2022 emissions baseline includes annualised contribution from the
related locations in India and US. Considering the annualised
contribution of these locations allowed for a more meaningful tCO2e
(gross Scope 1, 2 & 3) per employee comparison.
2. UK energy consumed in 2022 was calculated based on the kWh
for home-working and it represented an insignificant portion of the
total energy consumed. In 2021 it was calculated based on
grey-fleet car mileage.
In the second half of 2022, two of our acquisitions, OpenFive
and Banias Labs, significantly changed the perimeter of our
business activity, from a pure IP player to a fabless provider of
connectivity semiconductors. In addition, our headcount increased
from 149 to 695 employees based in countries where we did not have
any presence before, such as India and Israel. For these reasons,
we are planning to use our 2023 emissions to establish a baseline
carbon footprint to identify opportunities for improvement over the
short, medium and long term and set specific reduction goals in
2024.
Alongside this, we are gradually rolling out activities to
ensure we minimise our GHG emissions:
-- actively manage e-waste, with robust product lifecycle
management programmes for our computer and IT resources;
-- reducing business travel to when it is essential;
-- locating our offices in energy-efficient buildings and where
possible sourcing from renewable energy; and
-- offsetting our GHG emissions (Scope 1, 2 as well as travel included in Scope 3).
Our reporting is consistent with the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD) and provide
the following information on our approach to assessing and
disclosing climate-related risks and opportunities in accordance
with Listing Rule 14.3.27R, except for the following matters:
-- disclosure ('strategy c') - we have not performed a
quantitative risk assessment or climate-related scenario
analysis.
See full compliance statement included in appendix.
Risk management
Our process for identifying and assessing climate-related risks
and opportunities follows our Group-wide risk assessment and
management process. These risks, together with mitigations, are
discussed by the executive management team and the Board. Given our
fabless business model, the Group's exposure to climate -- related
risks is considered to be low and not currently classified as a
significant risk. In addition, the ESG Steering Committee supports
the identification of ESG risks and opportunities.
We have determined our climate-related risks and opportunities
as follows:
Related to the transition to a
low-carbon economy
---------------------------------------------- -------------------------------------------
Risks Opportunities
---------------------------------------------- -------------------------------------------
Policy and legal Low Resource efficiency Low
---------------------------------------------- -------------------------------------------
Alphawave Semi is a young and high-growth Our technology contributes to improving
company setting the foundations the energy efficiency of the digital
of its reporting on a range of environmental, infrastructure, enabling savings
social and governance topics. In in the amount of energy required
2022, we used the Sustainability to transmit data in data centres
Accounting Standards to guide our or 5G base stations.
reporting.
In 2022, our business model expanded
from IP to silicon. We continue
to adapt and comply with regulatory
standards, including evolving product
standards.
As a fabless business with low capital
intensity we do not have a significant
amount of assets at risk of impairment
or early retirement as a result
of changes in environmental legislation.
---------------------------------------------- -------------------------------------------
Technology Low Energy source Low
---------------------------------------------- -------------------------------------------
Alphawave Semi is at the forefront All our premises are leased. Our
of connectivity technology. offices in Canada (Toronto and Ottawa)
and the US (Milpitas and San Jose)
Our leading-edge technology advances are based in modern, smart buildings
push the boundaries of wired connectivity with energy-saving systems and modern
capabilities, enabling data to travel HVAC systems.
faster, more reliably, and using
lower power. Our premises in Pune and Bangalore,
India, which we brought in with
Our focus on connectivity and R&D the acquisition of OpenFive in 2022,
investment seeks to ensure we remain were evaluated.
ahead of our competitors.
Energy from renewables is not available
in all our locations, but where
possible, we try to improve the
mix of purchased energy towards
renewables.
---------------------------------------------- -------------------------------------------
Market Low Products and services Medium
---------------------------------------------- -------------------------------------------
As a fabless business, energy costs The semiconductor industry is well
are not a major direct cost driver. placed to support the transition
to a lower carbon emission economy.
Our business has a low risk exposure Our technology enables semiconductors
from scarcity of 'rare Earth materials'. with lower power consumption, contributing
to a more energy-efficient digital
Higher energy costs could potentially infrastructure, such as data centres,
impact the direct costs of our manufacturing 5G base stations and other data
partners. Our foundry partners are intensive applications.
the leading manufacturing companies
in the industry and continuously
invest in the adoption of next generation
manufacturing technologies.
---------------------------------------------- -------------------------------------------
Reputation Low Markets Medium
---------------------------------------------- -------------------------------------------
Although our direct carbon footprint We work with the leading companies
is relatively small compared to in the semiconductor industry, as
other business activities, we have well as hyperscalers.
committed to work towards achieving
carbon neutrality. Our connectivity technology aims
to address the hardest -- to-solve
In 2023, we intend to baseline our problems for customers in digital
activities and define a clear level infrastructure markets.
from which we can define specific
environmental goals. We have not identified any opportunities
to access new low carbon emission
markets.
---------------------------------------------- -------------------------------------------
Related to the physical impact
of climate change
---------------------------------------------- -------------------------------------------
Acute risk (event driven) Low to Medium
---------------------------------------------- -------------------------------------------
As a fabless semiconductor company, All our employees can work remotely
our own operations are unlikely and the majority of our offices
to face any specific material risks are located in city centres.
as a result of the physical impacts
of climate change, such as property Our manufacturing partners have
damage due to extreme weather events implemented multiple initiatives
(such as changes in temperature, to reduce their carbon footprint,
wind patterns, or water -- related). review water and energy usage, and
understand and manage the effects
We have not yet formulated a science-based of climate change on their own operations.
study to assess current and future We work with leading companies like
climate risks, acute and chronic, TSMC, which follow the recommendations
in our most critical locations. of the TCFD and have initiatives
The purpose of such a study would in place to manage these risks.
be to inform the risk assessment
of business interruption, mitigation Our key assets are our employees,
and adaptation plans, as well as our intellectual property and our
any other resilience issues. expertise.
---------------------------------------------- -------------------------------------------
Chronic risk (long-term shifts Low to Medium
in climate patterns)
---------------------------------------------- -------------------------------------------
In the longer term, changes in greenhouse It could potentially become more
gas emissions regulations could difficult or expensive to insure
result in increased costs in our certain locations.
supply chain due to higher compliance,
raw materials or energy costs to
our suppliers.
---------------------------------------------- -------------------------------------------
Dependency on natural, human and social capital
Climate change would not create any new direct dependencies on
natural, human or social capital. Our business model relies on our
ability to keep at the forefront of connectivity technology for
digital infrastructure markets such as data centres, artificial
intelligence or 5G.
Our highly skilled engineers and talented employees are vital to
ensure we can deliver innovative products. Electronic engineers are
in high demand and companies outside the semiconductor industry are
establishing engineering departments to design some of their
semiconductor requirements.
Governance
The Board has overall accountability for the management of risks
and opportunities, and the Board's consideration of significant
risks impacting the Group includes assessment of risks associated
with climate change.
Our Chief Financial Officer is responsible for our risk
management framework, including the assessment and management of
climate-related risks. The ESG Steering Committee supports and
guides the execution of our environmental activities.
In 2022, we hired our Global Head of Investor Relations, who is
also responsible for leading our climate change agenda and managing
our policies and practices across sustainability and ESG matters.
Our Senior Facilities Specialist is responsible for all our
facilities and our IT Director is responsible for our IT resilience
and IT end -- of-life policies.
Strategy
We have not identified any short-term climate-related risks that
are likely to have a material and direct impact on our operations.
We are potentially exposed to medium and longer-term
climate-related risks of a global/macro nature that impact society
in general, together with risks which may impact our end-customers
and the broader semiconductor supply chain.
Our exposure is mitigated by the fact that we are a low carbon
intensity business, delivery of our technology to customers is
through virtual and not physical means, and our value chain has
worked effectively through the COVID-19 pandemic, to execute
remotely and from alternative locations. Therefore, we regard our
exposure to direct physical climate -- related risks as low.
Further, the impact of any transitional changes upon the Group
and its operations is considered to be low compared to those
businesses that have more direct dependencies on manufacturing,
distribution or fossil fuels.
In preparing the consolidated financial statements, the
Directors have considered the impact of climate change on the Group
and have concluded that there is no material impact on financial
reporting judgements and estimates (as discussed in note 3 to the
financial statements). This is consistent with the assertion that
risks associated with climate change are not expected to have a
material impact on the longer -- term viability of the Group.
Furthermore, the Directors do not consider there to be a
material impact on the carrying value of goodwill, other
intangibles or on property, plant and equipment.
Forward focus 2023
-- Develop training and reporting requirements to collect and
monitor emissions data across the Group's locations on a quarterly
basis.
-- Develop emission-reduction strategies for each of our main locations.
-- Set baseline using 2023 emissions data.
-- Evaluate additional requirements to undertake climate-related scenarios.
Supply Chain
Context
With the acquisition of OpenFive in September 2022 we welcomed a
team of engineers with custom silicon expertise. This included a
team responsible for managing the manufacturing process that is
outsourced to foundries as well as semiconductor assembly and test
(OSAT) partners.
As a fabless business, successfully managing our supply chain is
important in ensuring our commercial success.
It reflects our current effort to not just minimise any
reputational, commercial or contractual harm but also the
importance given by stakeholders to the need for our company to
identify and proactively manage related sustainability impacts.
As well as minimising the potential disruption risk, this also
includes certain sustainability aspects such as:
-- impact on human and labour rights (aligned to national legislation);
-- health and safety performance of our partners; and
-- environmental impact.
Our main foundry and OSAT partners, which are the leading
companies in their sectors and much larger organisations, have
longstanding environmental programmes in place.
Management approach
We outsource the production of our semiconductors to the leading
companies in the industry, such as TSMC. They provide high-quality
products and have the ability to meet both our stringent
qualification requirements and our tight deadlines.
Assembly and test functions are also outsourced to leading
companies in the sector, such as ASE.
We still retain advanced packaging expertise in house, such as
2.5D and 3D technologies, as this is an area of vital importance in
the development of new architectures, such as System -- in --
Package and chiplets.
Our manufacturing operations are ISO 9001:2015 certified
https://awavesemi.com/custom-silicon/#supply-chain-management .
Our Vice President of Silicon Operations is responsible for all
manufacturing-related activities, including the management of our
foundry, assembly and test partners.
We manage our value chain through:
-- requiring all our fabrication, assembly and test partners to be ISO 9001 certified;
-- screening all partners against our manufacturing partner assessment survey;
-- annual audits (audit-light approach) of our major partners
through the assessment survey checklist including training and
development of staff, working conditions and the traceability of
materials, as well as a range of topics directly related to the
quality and control of their activities; and
-- weekly business and performance reviews with our regular
partners and annual meetings with our major vendors.
In addition, certain customers carry out due diligence on us and
our suppliers to ensure adequate systems are in place to monitor
ongoing performance, ensuring it is in line with expectations and
that the products supplied meet all requirements.
In 2022, we performed eleven audits, covering the majority of
our manufacturing partners as well as our main foundry partner.
Performance
On Time Delivery (OTD)
OTD measures supply chain efficiency, whether or not the Company
is meeting its goals in regard to agreed delivery times. It is also
important for maintaining customer satisfaction. From 1 September
to 31 December 2022, the average OTD was 99%.
Conflict minerals
We support international efforts to ensure that the mining and
trading of tin, tungsten, tantalum and gold (known as 3TG) from
high-risk locations do not contribute to conflict and/or serious
human rights abuses in the Democratic Republic of the Congo (DRC)
and the Great Lakes region of Africa (or elsewhere). We have a
Conflict Mineral Policy in place which is available on our
website:
https://awavesemi.com/wp-content/uploads/2022/11/QAP-0019-01_Conflict-Free-Minerals-Sourcing-Policy.pdf
Alphawave Semi extends this obligation to our suppliers, to
reasonably assure that the tantalum, tin, tungsten and gold in the
products they manufacture are conflict free. The Company also
expects its suppliers to establish their own due diligence
programme to achieve conflict-free supply chains.
Since we became a silicon provider in 2022, we have not
identified any instances where tungsten, tin, tantalum and gold
(3TG) that are integrated into our products have supported armed
groups in the Democratic Republic of the Congo (DRC) or adjoining
countries. All our 3TG minerals are from Conflict Minerals
compliant smelters.
Environmental management
It is important that our fabrication partners demonstrate
environmental leadership. This is why, in line with our
Environmental Compliance Policy, we only work with suppliers who
are committed to environmental preservation, and who comply fully
with environmental laws, regulations and industry environmental
guidelines. We continue to work with our manufacturing partners to
adopt advanced process technologies that will have an
ever-decreasing impact on the environment, world-wide.
It is vital that we can identify and safely manage hazardous
materials. This includes the provision of relevant materials
declarations under EU Directive 2011/65/EU (Restriction of
Hazardous Substances or 'RoHS3') and the amendment EU Directive
2015/863. Our products are halide free, containing very low
concentrations of halogens (fluorine, chlorine, bromine and
iodine), well below the internationally suggested limits.
Our products are also fully compliant with EU Regulation (EC)
1907/2006 (Registration, Evaluation, Authorisation and Restriction
of Chemicals or 'REACH').
Forward focus 2023
-- Continue to deliver high levels of operational performance (On Time Delivery).
-- Evaluate possible areas of improvement, such as establishing a Supplier Code of Conduct.
-- Expand the team to support the Company's growth strategy.
Case study
Alphawave Semi is a member of TSMC's Value Chain Alliance
TSMC's Value Chain Alliance (VCA) programme aims to serve a
broader range of customer. Through the acquisition of OpenFive,
Alphawave Semi's custom silicon business is a member of the
VCA.
As a VCA member we work closely with TSMC to help system
companies, ASIC companies and emerging start-up customers bring
their innovation to production.
We integrate design enablement building blocks within TSMC's
Open Innovation Platform(R) (OIP) and provide specific services at
each link in the semiconductor value chain.
For more information see:
https://www.tsmc.com/english/dedicatedFoundry/oip/value-chain-alliance.
Intellectual Property
Context
The protection of intellectual property is vital for any
business focused on the creation of innovative and high-value
technological solutions.
Any failure in this regard could have profound consequences for
the value of our inventions, products and our Company.
Furthermore, we have access to and work with our customers'
intellectual property and/or commercial and technological
secrets.
We recognise the high degree of trust that this requires on the
part of our customers, and this reflects the value we seek to add
in these relationships.
Management approach
We are advancing wired connectivity technology for digital
infrastructure. Given the rapid evolution of technology and
increasing customer requirements, the sustainability of our
business relies on us staying at the cutting edge. Our engineering
teams seek to innovate in ways that grow the business, help our
customers and keep the Group at the forefront of the connectivity
market. As a result, we invest a significant amount into R&D.
In FY 2022 we expensed US$69.4m of R&D activities or 37% of
revenue (FY 2021: US$29.4m or 33% of revenue).
Our Chief Technology Officer (CTO) works with Alphawave Semi
innovators to define our technology vision and roadmap, as well as
drive innovation across the Group.
The IP Committee is responsible for:
-- advising the CTO on how to best combine trade secrets,
patents and public disclosures to lead in a competitive
environment; and
-- reviewing and ensuring the correct implementation of applicable policies and procedures.
The CTO chairs the Committee, and its members include
representatives from our Engineering, Marketing and Legal teams.
The Committee meets on a monthly basis.
We ensure that all intellectual property is safeguarded through
the application of:
-- a dedicated Invention Disclosure Policy as well as related
procedures. The Invention Disclosure Policy is intended to ensure
all innovation is recognised and properly managed. Together, these
address issues such as data security and incident management;
-- an incentive policy for innovations submitted to the IP
Committee as well as recognition awards;
-- a Public Technical Disclosure Policy, covering the regulation
of public technical disclosures to standards bodies, consortia,
customers, vendors, partners and other public venues;
-- related restrictive provisions in our contracts of employment;
-- robust information technology systems to prevent data leakage; and
-- access controls to specific project data for employees and third parties.
In line with our Company culture to foster innovation and
support the next generation of innovators, each innovation
disclosure submitted to the IP Committee by employees is considered
for an Innovation Award. Recipients of these awards are recognised
at an all-hands event with a commemorative plaque and US$2,000
bonus shared equally among inventors.
In 2022, we awarded the first Alphawave Innovation Award. The
award recognised three innovators for an invention that lowers the
power consumption of our DSP products. We look forward to
recognising many more of the outstanding innovations across the
Company in 2023 and beyond.
Key issues and initiatives
Positive product impacts
The technology that we develop and market can be optimised to
our customers' precise design needs, helping to bring applications
to market quicker. Our multi -- standard silicon IP solutions
enable data transmission faster, more reliably, and at lower power,
offering proven solutions to many of the world's most complex
connectivity challenges.
Being particularly energy-intensive, the data centre industry
accounts for 1-1.5% of global electricity use. The data centres and
data transmission networks that underpin digitalisation accounted
for around 300 Mt CO(2) -- eq in 2020, equivalent to 0.9% of energy
-- related GHG emissions or 0.6% of total GHG emissions(1) .
Connectivity accounts for much of the power in data centres, and
our technology is helping to drive that down.
Reliable and power-efficient data transmission is at the core of
industry efforts to improve energy efficiency and help reduce
climate impacts. As published by the Global
Semiconductor Mobile Association in the State of the Industry on
Climate Action 2022 report, artificial intelligence, machine
learning and virtualisation are helping to optimise power use in
equipment, centralising network resources (enabling synergies) and
avoiding unnecessary heating or air-conditioning(2) . Our
technology enables the flow of data necessary to enable this.
Minimisation of negative product impacts
We are advancing connectivity technology and operate at the
bleeding edge. The nature of our integrated circuits means that
their actual and potential negative impacts are relatively limited.
Nonetheless, we design our products in a way that helps to minimise
any negative impacts they might have over their lifecycle. This
includes efforts to reduce the size of our integrated circuits,
thus reducing the amount of input materials required.
In addition, and as described above, we aim to make our
integrated circuits as energy-efficient as possible - while also
enhancing the energy efficiency of the digital infrastructure into
which they are incorporated.
Focus areas in 2023
-- Agile innovation recognised in our core values.
-- Integrate IP procedures and policies across the Company.
-- Fostering collaboration across teams to foster more innovation.
PipeCORE PCI-Express and CXL PHY
PipeCORE PHY IP is a high -- performance, low-power, PCIe Gen1 -
Gen6 PHY, that is capable of also operating at 64Gbps PAM4 PCIe
Gen6 rates. The PCIe 6.0 specification doubles the bandwidth and
power efficiency of the prior generation.(3)
1. IEA (2022), Data Centres and Data Transmission Networks, IEA, Paris https://www.iea.org/reports/data-centres-and-data-transmission-networks, License: CC BY 4.0.
2.
https://www.gsma.com/betterfuture/wp-content/uploads/2022/05/Moble-Net-Zero-State-of-the-Industry-on-Climate-Action-2022.pdf.
3. https://pcisig.com/pci-express-6.0-specification.
Business Ethics
Context
We work with leading-edge technologies and seek to establish
long-lasting relationships with our customers, partners and
suppliers. Our Code of Ethics and Business Conduct guides:
-- adherence to technical, ethical and commercial requirements;
-- protection of our intellectual property; and
-- strict compliance with national legislation of our host
societies, including those relating to anti -- bribery and
corruption.
Any breach of our legal obligations or our customers' and
partners' trust has the potential to compromise our business,
either in terms of the loss of valuable commercial relationships,
loss of our reputation or the application of official
sanctions.
Management approach
We manage business ethics through the application of the Code of
Ethics and Business Conduct, which addresses a range of issues
including:
-- respect for the individual;
-- creating a culture of open and honest communication;
-- ethical and fair competition;
-- proprietary information;
-- conflicts of interest;
-- corporate record keeping;
-- protection of the Company's reputation; and
-- selective disclosure.
For further information on our policies see
https://awavesemi.com/company/esg/. Our Code of Ethics and Business
Conduct is also available at
https://awavesemi.com/wp-content/uploads/2023/04/Business-Code-of-Conduct-v2.pdf.
The application of our corporate Code of Ethics and Business
Conduct - Human and labour rights
Our Code of Ethics and Business Conduct is directly informed by
international, industry and customer standards.
Responsibility for reviewing and updating the Code of Ethics and
Business Conduct sits with our Chief Financial Officer.
Given the highly specialised nature of our industry, we believe
our supply chain has relatively low levels of slavery and human
trafficking risk. Our Policy Against Trafficking of Persons and
Slavery reflects our ongoing commitment to a work environment that
is free from human trafficking and slavery, including forced labour
and unlawful child labour. The Company is also committed to
remaining vigilant through compliance monitoring and verification,
especially in selecting new suppliers.
For further details on our Policy Against Trafficking of Persons
and Slavery see our website at
https://awavesemi.com/wp-content/uploads/2022/10/policy-against-trafficking-of-persons-and-slavery.pdf.
Anti-bribery and corruption
Compliance with global anti-bribery and corruption (ABC)
legislation is vital in our approach to business dealings and forms
the basis of our Anti-Bribery Policy. We will uphold all laws
relevant to countering bribery and corruption in all the
jurisdictions in which we operate. However, we remain bound by the
laws of the UK, including the Bribery Act 2010, in respect of our
conduct both in the UK and abroad. Training on this policy forms
part of the induction process for all new employees. Additionally,
all employees will be asked to formally accept conformance to the
policy on an annual basis.
Responsibility for this framework sits with our Chief Financial
Officer.
For further details see our Anti-Bribery and Corruption Policy
on our website at
https://awavesemi.com/wp-content/uploads/2023/04/Anti-Bribery-Policy-v.1.1.pdf.
Anti-fraud and dishonesty
Compliance with our Anti-Fraud and Dishonesty Policy ensures
transparency and accountability in how the administrative processes
are carried out and the decisions we make. This policy includes
topics such as fraud, theft and abuse of position.
The Company fosters honesty and integrity in its entire staff.
Directors and staff are expected to lead by example in adhering to
policies, procedures and practices. Equally, members of the public,
customers and external organisations (such as suppliers and
contractors) are expected to act with integrity and without intent
to commit fraud against the Company.
As part of this, the Company provides clear routes by which
concerns may be raised by Directors, employees and associates.
Details of this can be found in the Company's Anti-bribery and
Whistleblowing Policy.
Overall responsibility for managing the risk of fraud has been
delegated to the Chief Financial Officer. The day-to-day
responsibility has been delegated to the Senior Director of Group
Finance to act on behalf of the Chief Financial Officer.
For further details see our Anti-fraud and Dishonesty Policy
published on our website at
https://awavesemi.com/wp-content/uploads/2023/04/Anti-Fraud-and-Dishonesty-policy-v1.1.pdf.
Whistleblowing
Employees or associates that suspect a potential issue including
bribery, facilitation of tax evasion, fraud or other criminal
activity, can report it to the confidential email address
ombudsman@awavesemi.com or by contacting the Senior Independent
Director. Employees or associated persons who report instances of
potential issues in good faith will be supported by the Company.
The Company will ensure that the individual is not subjected to
detrimental treatment as a consequence of his/her report and any
instances of such behaviour will be treated as a disciplinary
offence.
For further details see our Whistleblowing Policy published on
our website at
https://awavesemi.com/wp-content/uploads/2023/04/Whistleblowing-Policy-1.1.pdf.
Performance
In 2022, all new employees and those welcomed through
acquisitions covered our Code of Ethics and Business Conduct as
part of their induction.
During the year we also published our Policy Against Trafficking
of Persons and Slavery and reviewed and updated our key policies,
such as the Anti -- Fraud and Dishonesty Policy and our Anti --
Bribery and Corruption Policy.
Focus areas in 2023
-- Annual review of relevant policies.
-- Review of training requirements.
Community Engagement
Context
In 2022, we officially kicked off our community engagement
programme across the Company.
As an organisation, it is important to us that we engage with
the communities in which we operate.
Our community engagement activities seek to improve the welfare
of the communities where we work and live.
This programme creates a platform for our employees to donate
their time and support to a range of local and not-for-profit
organisations that are of interest to them.
Management approach
The community engagement programme is co-ordinated by local
representatives who meet remotely twice a year to share experiences
and co-ordinate Group-wide initiatives.
Responsibility at Group level sits with our Senior Facilities
Specialist who is part of the Human Resources function.
The goal of our community engagement programme is to support
local and non-for-profit organisations that are of interest to our
employees, promote the wellbeing of local residents and align with
our corporate values, such as Inclusivity, Integrity and
Collaborative.
Key initiatives
Our corporate giving programme provides additional support by
matching employee donations to local charities and
organisations.
In 2022, the Company donated approximately US$30,000 globally to
support local organisations and charities.
Additionally, our internship programmes in India and Canada work
with local universities and organisations to ensure we make a
positive contribution to the promotion of Science, Technology,
Engineering and Mathematics (STEM) education and careers in
engineering, supporting the next wave of innovators and expanding
the talent pipeline. For more information see our People
section.
In 2022, we also hosted our first 'bring your kids to work' day
in Toronto and Ottawa. As part of the activities we shared some
basic insights about our company and the industry, and there were
multiple creative activities with a link to science (such as
building specific structures). The day ended watching 'Dream Big',
an engineering movie. This event was also part of an official
educational day in Ontario.
Forward focus areas in 2023
-- Track number of hours involved in community engagement activities.
-- Assign country-specific budgets.
-- Facilitate employee participation through online tools where
employees can register to volunteer.
Case study
Supporting local food banks
In October, our Toronto and Ottawa offices housed food donation
boxes in support of the Toronto Daily Food Bank and the Kanata Food
Bank. All donations made by employees were matched by the Company,
raising a total amount of over US$16,000.
Financial review
2022 was a year of rapid expansion for the business.
2022 was a year of rapid expansion for the business - both
organically and through acquisition - in terms of technology,
competencies, customers, regions, engineering headcount and support
functions. We completed three acquisitions during 2022, deploying
US$439m of our IPO proceeds to realise our ambition for Alphawave
Semi and raised US$210m in debt to maintain a strong balance
sheet.
The foundation of the business remains our leading connectivity
IP, which we can now monetise not only as IP licensed to customers
developing their own chips, but by integrating that IP into custom
silicon or own silicon products. The acquisitions of Precise-ITC
and Banias Labs added complementary connectivity technology to our
portfolio. Alongside the acquisition of Banias Labs, we announced a
multi-year purchasing agreement with a leading North American
hyperscaler to develop and sell a portfolio of optical products and
DSPs.
With the acquisition of OpenFive, we acquired custom silicon
development capabilities and complementary connectivity IP. We also
acquired a significant backlog of business and customer contracts,
some of which will impact our margins in the near term. However,
and as evidenced by some of our recent custom silicon design wins,
as we execute on new business more aligned with our strategy and
Group margin targets, we expect a steady improvement in
margins.
2023 will be a transition year as we continue the integration of
our acquisitions and deliver on our growth strategy. The legacy
custom silicon business acquired with OpenFive will be an important
element of our revenue mix and our margin profile for the year.
Contracted order book and backlog
FY 2022 bookings totalled US$228.1m, of which US$131.3m
represented IP licensing and NRE orders and US$96.8m represented
royalty and silicon orders. This compares to US$244.7m of total
bookings in 2021. However, US$147.8m of our 2021 bookings was
generated from the multi-year licensing and resellers deals with
WiseWave and VeriSilicon. Excluding those one-time deals,
year-on-year bookings growth was 135%, comprising 80% growth in
licensing and NRE orders and 304% growth in royalty and silicon
orders. The performance in our royalty and silicon orders was
driven by silicon orders in our custom silicon group following the
acquisition of OpenFive.
North America was the largest contributor to bookings in 2022,
representing 46% of the total. It was followed by 39% from China,
9% from EMEA and 6% from APAC excluding China. Our China bookings
in the period were largely driven by custom silicon orders from
customers acquired through the acquisition of OpenFive.
Backlog represents the value of contracted bookings over the
life of the Group excluding potential royalties not yet recognised
as revenue. At the end of 2022, our backlog was US$364.5m, more
than double the backlog at the end of 2021 of US$168.6m. The
increase was partly driven by the backlog acquired with OpenFive
and Precise-ITC of US$168.3m, of which over US$100m was in our
backlog as at the end of 2022. US$69.8m represents future revenue
to be recognised under the subscription deals with WiseWave and
through VeriSilicon.
Revenues
Revenues for 2022 reached US$185.4m, 106% growth compared to
US$89.9m in 2021. The strong increase was driven by organic growth
and acquisitions:
-- Acquisitions - The acquisitions of OpenFive and Precise-ITC
contributed US$66.1m of revenues after consolidation entries at
Group level. Our revenues excluding OpenFive and Precise-ITC were
US$119.3m, with organic revenue growth of 33% compared to 2021
(US$89.9m).
-- Customers - In 2022, we recognised revenues from 80 end --
customers, compared to 20 end-customers in 2021. This included new
tier-one customers licensing our IP as well as customers acquired
with Precise-ITC and OpenFive. 53% of our 2022 revenues were from
existing end-customers, with 47% from end-customers new to
Alphawave. End-customer revenue concentration decreased during the
year. Our top five end-customers generated 47% of our 2022 revenues
(2021: 62%) or 39% excluding revenues from the WiseWave
subscription deal (2021: 51%).
-- Regions - In addition to WiseWave and VeriSilicon, the
contribution in 2022 from China (57%) was driven by significant
outperformance of custom silicon products in the region. Absent
this, our regional mix was comparable to 2021. Over the long term,
as the silicon product revenues ramp with hyperscalers and other
large, predominantly North American customers, we expect the mix of
China revenues to gradually decrease to 10% of sales or lower.
North American revenues grew 36% from US$37.6m in 2021 to US$51.4m
in 2022, and APAC (excluding China) revenues grew 84% from US$9.2m
in 2021 to US$17.0m in 2022. We also saw our first revenues from
EMEA of US$12.3m in 2022, largely driven by our IP licensing
business.
We recognised a small amount of royalty revenue in 2022 based on
early production volumes from a specific customer. Given the long
design cycles at our customers, we expect royalties to gradually
increase and contribute to earnings in the medium term. Further, as
we seek to monetise our IP through silicon and achieve greater
revenue scale and higher absolute earnings, we expect the
contribution from IP royalties to be less significant to our Group
results.
Operating expenses and profitability
Gross margin in 2022 was 67%, with cost of sales primarily
reflecting silicon manufacturing costs and custom silicon
development costs, as well as sales and reseller commissions on IP
sales. In 2021 gross margin was 94%. Gross margin in 2022 reflects
the diversification of our business into custom silicon development
and silicon products. Through the acquisition of OpenFive, we
inherited a number of contracts where gross margins are below our
Group targets.
EBITDA (1) in 2022 was US$49.3m (27% margin) compared to
US$39.2m in 2021 (44% margin). On an adjusted basis, EBITDA in 2022
was US$46.8m (25% margin) compared to US$51.8m (58% margin) in
2021. The decrease in adjusted EBITDA margin was expected and
reflects the early stage of our migration to a combined IP
licensing and silicon model through our acquisitions and the
scaling of our engineering capabilities.
Reflecting the continued scaling of the business and our
acquisitions, operating expenses in 2022 were US$87.0m compared to
US$48.7m in 2021.
1. See note 4 (Alternative performance measures) for
reconciliations of EBITDA to adjusted EBITDA.
R&D/engineering expenses in 2022 were US$69.4m (37% of
revenue) compared to US$29.4m (33% of revenue) in 2021. In 2022,
R&D/engineering included US$5.5m amortisation of acquired
intangibles. For the first time, in 2022 we capitalised US$7.2m
related to our own product development activities (2021:
US$nil).
Sales and marketing (S&M) expenses in 2022 were US$4.6m (3%
of revenue) compared to US$1.3m (1% of revenue) in 2021.
General and administrative (G&A) expenses in 2022 were
US$17.2m (9% of revenue) compared to US$5.4m (6% of revenue) in
2021. G&A expenses in 2022 included an expected credit loss of
US$2.2m based on our assessment of our potential credit loss on
overdue invoices and accrued revenues. Excluding this, our G&A
expenses for 2022 were US$15.0m (8% of revenue).
The year-on-year increase in R&D, S&M and G&A
expenses was primarily due to the increase in headcount from 149
full -- time employees at end 2021 to 695 at end 2022, together
with associated software tool costs which scale with our
R&D/engineering headcount. The increase of 546 full-time
employees includes 376 employees who joined as part of the
acquisitions of OpenFive, Banias and Precise-ITC. In addition, we
invested in our support functions and scaled our finance, HR, legal
and corporate marketing teams, reflecting the increased complexity
and geographical spread of the Group.
In the medium term, we anticipate only modest growth in our
headcount as we believe the Group is right-sized for the
opportunities ahead.
Other expenses in 2022 totalled a credit of US$4.2m. M&A and
professional costs in 2022 were US$17.0m related to the
acquisitions and the debt funding. Stock-based payment costs of
US$15.7m in 2022 reflect our increased headcount, equity grants
awarded to employees joining from OpenFive and Banias, as well as
significant one-time grants awarded to new members of the senior
management team who joined us in 2022. Exchange gains in 2022 were
US$36.8m, driven mainly by the strengthening of USD against GBP in
H1 2022, as the Company held a significant USD balance at the plc
level, which is a GBP denominated entity.
Other expenses in 2021 were US$12.6m, comprising US$10.0m of
non-recurring IPO costs, US$0.5m one-time M&A/professional
expenses, US$6.1m share-based payment costs and US$4.0m of exchange
gains.
Operating profit was therefore US$37.6m in 2022, US$1.6m above
2021.
Finance income in 2022 was US$1.7m, compared to US$0.3m in 2021.
The increase was largely driven by cash proceeds from IPO being
invested in interest-bearing accounts.
Finance expense in 2022 was US$3.6m, US$3.3m higher than in 2021
(FY 2021: US$0.3m). The increase was driven by interest associated
with the five-year term loan obtained in October 2022.
Share of the post-tax loss of equity-accounted joint ventures
was US$18.5m in 2022, compared to US$12.9m in 2021.
At the end of 2022, the Group owned 42.5% of WiseWave, a newly
formed company established in China in Q4 2021 to develop and sell
silicon products incorporating silicon IP licensed from the Group.
We equity account for the investment as a joint venture, resulting
in a US$18.5m loss (US$12.9m loss in 2021). The five-year
subscription licence agreement is being capitalised and amortised
over the life of the agreement by WiseWave.
Tax expense in 2022 was US$18.3m, being 106% of profit before
tax of US$17.2m, or 36% after adjusting for the loss from WiseWave
and stock-based compensation expense, both of which are not
deductible for tax purposes.
In 2022 we incurred a loss after tax of US$1.1m compared to
US$9.4m profit for the year in 2021.
On an adjusted basis, profit after tax in 2022 was US$6.7m,
compared to US$22.0m in 2021.
The exchange loss of US$75.0m in other comprehensive income is
predominantly a result of the Company, a GBP-denominated entity,
having net assets (including a large cash balance being the
remainder of our GBP proceeds raised at IPO) translated into USD,
our presentational currency. This is re-translated again for
presentational purposes into USD at the year end. Over this period
the USD strengthened against GBP from 1.4134 to 1.2058, a 15%
increase.
Balance sheet, liquidity and cash flow
At the end of 2022, we held US$186.2m in cash and cash
equivalents and had borrowings of US$210.2m, comprising a revolving
credit facility of US$110.0m, a term loan of US$98.8m and other
long-term borrowings of US$1.5m. During 2022, our net cash position
decreased from US$501.0m to a net debt position of US$24.0m. During
the year we deployed the proceeds of our IPO, investing US$438.7m
on acquisitions, net of acquired cash.
During 2022 current trade and other receivables increased from
US$13.1m to US$104.6m. This increase was primarily due to
prepayments of US$50.9m from the OpenFive acquisition, which
represent advance payments to foundries to reserve fab capacity and
are predominantly covered by advance receipts from customers and
other prepayments of US$19.7m (2021: US$2.5m).
Following the acquisition of OpenFive, at the end of 2022 we
held physical inventory of silicon devices with a value of US$18.1m
(2021: US$nil).
At the end of 2022 the carrying amount of intangible assets was
US$161.4m (2021: US$1.2m). The increase during the year was
primarily due to the technology and IP acquired with OpenFive and
Banias Labs.
In 2022 we recognised aggregate goodwill of US$331.9m from the
acquisitions of Precise-ITC, OpenFive and Banias Labs.
Accrued revenue, where revenue recognition conditions are met
under IFRS 15 but we have not billed or collected any amount,
increased from US$31.7m at the end of 2021 to US$58.5m at the end
of 2022. This increase was a function of our revenue growth and the
timing of invoicing milestones on specific contracts, primarily for
our IP sales. WiseWave accounted for US$20.2m of the accrued
revenue balance at the end of 2022.
Investments in equity-accounted associates, namely the value of
the investment in WiseWave, was reduced from US$9.4m in 2021 to
US$nil in 2022, as a result of equity accounting for losses at
WiseWave during the period. The value of the cumulative losses
incurred by WiseWave exceeds the cumulative value of our investment
into the business.
During 2022, current trade and other payables increased from
US$5.8m to US$83.1m. This increase was predominantly due to higher
purchasing levels as the business has scaled.
Deferred revenue liability, where we have invoiced or received
money for products or services where revenue recognition conditions
are not met, increased from US$12.7m at the end of 2021 to US$91.7m
at the end of 2022. This increase was due to the order intake for
custom silicon products where in some instances customers are
required to make advance payment ahead of silicon being shipped to
them.
During 2022, flexible spending accounts, which represent
deferred income, decreased from US$6.8m to US$5.2m. Flexible
spending accounts are contracts with customers who have committed
to regular periodic payments to us over the term of the contract.
These payments are not in respect of specific licences or other
deliverables, but can be used as credit against future
deliverables. We have flexible spending accounts with customers
with whom we work on multiple projects and who prefer regular
periodic billing and payments rather than milestone-based billing.
Although we have been invoicing and collecting under these
contracts, the revenue recognition conditions may not have been
met, which enable us to recognise these billings as revenue.
In 2022 we generated cash from operating activities before tax
of US$7.8m compared with US$26.5m in 2021. In 2022 there were
one-time payments of approximately US$6.0m relating to M&A and
professional fees. Also, our operating cash flow in 2022 includes
US$28.2m of cash outflows related to deferred compensation payable
as part of the acquisitions of Precise-ITC and Banias. These are
attributable to payments made as part of the acquisitions that do
not represent consideration, but are classified as compensation
payments in lieu of share-based remuneration or payments
conditional on continued employment with the Group. These payments
are included within working capital. Excluding these, our operating
cash flow before tax was US$36.0m.
Excluding these compensation payments, working capital in 2022
increased by US$15.0m, compared to an increase of US$15.6m in 2021.
This was primarily due to an increase in trade and other
receivables, offset by an increase in deferred revenue and flexible
spending accounts, and trade and other payables.
Income tax paid in 2022 was US$19.9m, compared to US$7.6m in
2021.
In 2022, the Group generated a net cash outflow from operating
activities after tax of US$12.1m, compared to a net cash inflow of
US$18.9m in 2021. As stated above, this includes cash outflows
related to one-time M&A-related expenses as well as deferred
compensation payable as part of the acquisitions of Precise-ITC and
Banias.
Capital expenditure during 2022 totalled US$15.5m (2021:
US$2.2m), comprising US$4.2m of plant, property and equipment and
US$11.3m of intangibles. US$11.3m of intangibles includes
capitalisation of development expenses of US$7.2m (2021: US$nil).
US$4.2m of plant, property and equipment relates to purchases of
lab and test equipment as we ramp our own product development
capabilities, as well as leasehold improvements.
In 2022, we also made further equity investments into WiseWave
totalling US$9.1m, with Wise Road Capital contributing US$12.3m. As
disclosed in our IPO Prospectus, Alphawave IP has committed to
invest up to US$170m in total into WiseWave, although our
expectation is that any future investment will be limited and we
will seek to realise our equity stake in the medium term.
As detailed in our Capital Markets Day in January 2023, the
Company's capital allocation policy is focused on investment in own
product development and prototyping, critical hires and expertise
to support growth opportunities, and management of our debt
position in a changing interest rate environment. We do not intend
to pay dividends or make significant acquisitions in the short or
medium term.
Finally, as further detailed on page 35, the Directors have
adopted the going concern basis of accounting.
Tony Pialis
Chief Executive Officer
19 May 2023
Statement of Directors' responsibilities
In respect of the annual report and financial statements
The Directors are responsible for preparing the annual report
and the Group and 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 that
law they are required to prepare the Group financial statements in
accordance with UK-adopted international accounting standards and
applicable law and have elected to prepare the parent company
financial statements in accordance with UK accounting standards and
applicable law, including FRS 101 Reduced Disclosure Framework.
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 Company and of the
Group's profit or loss for that period. In preparing each of the
Group and 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;
-- for the Group financial statements, state whether they have
been prepared in accordance with UK-adopted international
accounting standards;
-- for the parent company financial statements, state whether
applicable UK accounting standards have been followed, subject to
any material departures disclosed and explained in the parent
company financial statements;
-- assess the Group and Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and
-- use the going concern basis of accounting unless they either
intend to liquidate the Group or the 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 Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group 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.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report, Directors' report,
Directors' remuneration report and corporate governance statement
that complies with that law and those regulations.
In accordance with Disclosure Guidance and Transparency Rule
4.1.14R,the financial statements will form part of the annual
financial report prepared using the single electronic reporting
format under the TD ESEF Regulation. The auditor's report on these
financial statements provides no assurance over the ESEF
format.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group's
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
-- the management report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
-- We consider the annual report and accounts, 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.
Tony Pialis
President & Chief Executive Officer
19 May 2023
Alphawave IP Group plc
6th Floor
65 Gresham Street
London
EC2V 7NQ
United Kingdom
Consolidated statement of comprehensive income
for the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Continuing operations Note US$'000 US$'000
------------------------------------------------ ---- ------------ ------------
Revenue 5 185,406 89,931
Cost of sales (60,777) (5,199)
------------------------------------------------ ---- ------------ ------------
Gross profit 124,629 84,732
Research and development/engineering 6 (69,358) (29,444)
Sales and marketing (4,647) (1,275)
General and administration (17,167) (5,364)
of which expected credit loss 28 (2,184) -
Other expenses 4,170 (12,614)
------------------------------------------------ ---- ------------ ------------
Operating profit 37,627 36,035
------------------------------------------------ ---- ------------ ------------
'Other expenses' charged in arriving at
operating profit:
Non-recurring Initial Public Offering costs 11 - (9,961)
M&A costs/professional costs (16,973) (533)
Share-based payment 27 (15,695) (6,143)
Exchange gain 36,838 4,023
------------------------------------------------ ---- ------------ ------------
Other expenses 4,170 (12,614)
Finance income 10 1,684 312
Finance expense 10 (3,588) (320)
Share of post-tax loss of equity-accounted
joint ventures 18 (18,481) (12,939)
------------------------------------------------ ---- ------------ ------------
Profit before tax 17,242 23,088
Tax expense 12 (18,328) (13,657)
------------------------------------------------ ---- ------------ ------------
(Loss)/profit for the year (1,086) 9,431
------------------------------------------------ ---- ------------ ------------
Other comprehensive expense
Items that may be reclassified subsequently
to profit or loss:
Exchange (losses) arising on translation
of foreign operations (74,989) (23,096)
------------------------------------------------ ---- ------------ ------------
Other comprehensive expense for the period,
net of tax (74,989) (23,096)
------------------------------------------------ ---- ------------ ------------
Total comprehensive expense for the year (76,075) (13,665)
------------------------------------------------ ---- ------------ ------------
(Loss)/profit per ordinary share attributable
to the shareholders (expressed in cents per
ordinary share):
Basic (loss)/earnings per share (US$ cents) 13 (0.16) 1.51
Diluted (loss)/earnings per share (US$ cents) 13 (0.16) 1.34
------------------------------------------------ ---- ------------ ------------
The notes on this document form part of these financial
statements.
Consolidated statement of financial position
as at 31 December 2022
Note 31 December 31 December
2022 2021
US$'000 US$'000
---------------------------------------------- ---- ----------- -----------
Assets
Current assets
Trade and other receivables 19 104,634 13,103
Accrued revenue 5 58,534 31,719
Taxes receivable 2,922 2,605
Inventories 20 18,061 -
Cash and cash equivalents 34 186,231 500,964
---------------------------------------------- ---- ----------- -----------
Total current assets 370,382 548,391
---------------------------------------------- ---- ----------- -----------
Non-current assets
Property and equipment 14 13,421 1,626
Intangible assets 15 161,406 1,167
Goodwill 16 331,886 -
Right-of-use assets 17 14,553 7,672
Investments in equity-accounted joint venture 18 - 9,421
Trade and other receivables 19 19,272 -
Deferred income taxes 24 2,680 -
---------------------------------------------- ---- ----------- -----------
Total non-current assets 543,218 19,886
---------------------------------------------- ---- ----------- -----------
Total assets 913,600 568,277
---------------------------------------------- ---- ----------- -----------
Liabilities
Current liabilities
Trade and other payables 21 83,055 5,805
Lease liabilities 17 3,756 2,160
Deferred revenue 5 91,733 12,661
Income tax payable - 6,970
Flexible spending account 5 5,200 6,819
Loans and borrowings 22 5,000 -
---------------------------------------------- ---- ----------- -----------
Total current liabilities 188,744 34,415
---------------------------------------------- ---- ----------- -----------
Non-current liabilities
Lease liabilities 17 11,177 5,668
Deferred income taxes 24 29,650 422
Trade and other payables 21 10,555 -
Loans and borrowings 22 205,201 -
---------------------------------------------- ---- ----------- -----------
Total non-current liabilities 256,583 6,090
---------------------------------------------- ---- ----------- -----------
Total liabilities 445,327 40,505
---------------------------------------------- ---- ----------- -----------
Net assets 468,273 527,772
---------------------------------------------- ---- ----------- -----------
Issued capital and reserves attributable
to owners of the parent
Share capital 25 9,751 9,399
Preference shares 25 - -
Share premium account 26 775 -
Share-based payment reserve 27 18,189 4,777
Merger reserve 26 (793,216) (793,216)
Foreign exchange reserve 26 (96,707) (21,718)
Retained earnings 26 1,329,481 1,328,530
---------------------------------------------- ---- ----------- -----------
Total equity 468,273 527,772
---------------------------------------------- ---- ----------- -----------
The financial statements on pages 27 to 28 were approved and
authorised for issue by the Board of Directors on 19 May 2023 and
were signed on its behalf by:
Tony Pialis
Director
The notes on this document form part of these financial
statements.
Company statement of financial position
as at 31 December 2022
31 December 31 December
2022 2021
Note US$'000 US$'000
----------------------------------------- ---- ----------- -----------
Assets
Current assets
Trade and other receivables 19 14,194 146
Amounts owed by Group undertakings 19 14,769 367
Taxes receivable 364 205
Cash and cash equivalents 34 125,729 463,360
----------------------------------------- ---- ----------- -----------
Total current assets 155,056 464,078
----------------------------------------- ---- ----------- -----------
Non-current assets
Investments in subsidiaries 18 280,373 22,391
Amounts owed by Group undertakings 19 260,011 22,997
Trade and other receivables 19 17,091 -
----------------------------------------- ---- ----------- -----------
Total non-current assets 557,475 45,388
----------------------------------------- ---- ----------- -----------
Total assets 712,531 509,466
----------------------------------------- ---- ----------- -----------
Liabilities
Current liabilities
Trade and other payables 21 12,400 1,013
Amounts owed to Group undertakings 21 - 150
Income tax payable 145 253
Loans and borrowings 22 5,000 -
----------------------------------------- ---- ----------- -----------
Total current liabilities 17,545 1,416
----------------------------------------- ---- ----------- -----------
Non-current liabilities
Trade and other payables 21 4,423 -
Loans and borrowings 22 203,750 -
----------------------------------------- ---- ----------- -----------
Total non-current liabilities 208,173 -
----------------------------------------- ---- ----------- -----------
Total liabilities 225,718 1,416
----------------------------------------- ---- ----------- -----------
Net assets 486,813 508,050
----------------------------------------- ---- ----------- -----------
Issued capital and reserves attributable
to owners of the parent
Share capital 25 9,751 9,399
Preference shares 26 - -
Share premium account 26 775 -
Share-based payment reserve 27 17,909 4,497
Merger reserve 26 (777,751) (777,751)
Foreign exchange reserve 26 (79,706) (23,486)
Retained earnings 26 1,315,835 1,295,391
----------------------------------------- ---- ----------- -----------
Total equity 486,813 508,050
----------------------------------------- ---- ----------- -----------
The Company has taken advantage of the exemption allowed under
section 408 of the Companies Act 2006 and has not presented its own
statement of comprehensive income in these financial statements.
The profit of the Company for the period was US$18.4m (period ended
31 December 2021: loss of US$8.4m).
The financial statements on pages 28 to 29 were approved and
authorised for issue by the Board of Directors on 19 May 2023 and
were signed on its behalf by:
Tony Pialis
Director
Company registered number: 13073661
The notes on this document form part of these financial
statements.
Consolidated statement of cash flows
for the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Note US$'000 US$'000
------------------------------------------------- ---- ------------ ------------
Cash flows from operating activities
(Loss)/profit for the year (1,086) 9,431
Items not affecting cash:
Tax expense 12 18,328 13,657
R&D tax credit (5,198) (3,039)
Amortisation of intangibles 15 6,159 -
Depreciation of property and equipment 14 2,472 642
Depreciation of right-of-use asset 17 3,036 2,485
Share of loss in joint venture 18 18,481 12,939
Share-based payment 27 15,695 6,143
Finance income 10 (1,684) (312)
Finance cost 10 3,197 26
Lease interest 10 391 294
Foreign exchange (gain) on Intercompany balances (8,742) (112)
------------------------------------------------- ---- ------------ ------------
51,049 42,154
------------------------------------------------- ---- ------------ ------------
Changes in working capital:
(Increase) in trade and other receivables (106,937) (6,879)
(Increase) in Inventories (3,390) -
(Increase) in accrued revenue (24,101) (21,391)
Increase in trade and other payables 46,363 2,859
Increase in deferred revenue and flexible
spending account 44,834 9,764
------------------------------------------------- ---- ------------ ------------
(43,231) (15,647)
------------------------------------------------- ---- ------------ ------------
Cash generated from operating activities
before tax 7,818 26,507
Income tax paid (19,906) (7,615)
Net cash generated from operating activities (12,088) 18,892
------------------------------------------------- ---- ------------ ------------
The notes on this document form part of these financial
statements.
Year ended Year ended
31 December 31 December
2022 2021
Note US$'000 US$'000
---------------------------------------------------- ---- ------------ ------------
Cash flows from investing activities
Purchase of property and equipment 14 (4,209) (1,129)
Purchase of intangible assets 15 (11,333) (1,038)
Interest received 10 1,270 312
Investment in joint venture 18 (9,060) (22,360)
Net cash outflow on acquisition of subsidiaries 33 (410,415) -
---------------------------------------------------- ---- ------------ ------------
Net cash used in investing activities (433,747) (24,215)
---------------------------------------------------- ---- ------------ ------------
Cash flows from financing activities
Issuance of common shares - Initial Public
Offering 25 - 509,003
Issuance of common shares 25 - 1,282
Initial Public Offering share issuance costs 25 - (20,308)
Exercise of options 27 898 5,089
Proceeds from Initial Public Offering stabilisation 25 - 22,238
Interest paid 10 (650) (26)
(Increase)/decrease in bank indebtedness 208,750 (54)
Repayment of principal under lease liabilities 17 (3,038) (2,494)
---------------------------------------------------- ---- ------------ ------------
Net cash generated from financing activities 205,960 514,730
---------------------------------------------------- ---- ------------ ------------
Net (decrease)/increase in cash and cash
equivalents (239,875) 509,407
Cash and cash equivalents at start of year 500,964 14,039
Effects of foreign exchange on cash and cash
equivalents (74,858) (22,482)
---------------------------------------------------- ---- ------------ ------------
Cash and cash equivalents at end of year 34 186,231 500,964
---------------------------------------------------- ---- ------------ ------------
The notes on this document form part of these financial
statements.
Consolidated statement of changes in equity
for the year ended 31 December 2022
Ordinary Share Share-based Currency Retained
share premium payment Merger translation earnings
capital account reserve reserve reserve equity Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Balance at 1 January
2022 9,399 - 4,777 (793,216) (21,718) 1,328,530 527,772
Comprehensive income
for the year
(Loss) for the year - - - - - (1,086) (1,086)
Other comprehensive
expense - - - - (74,989) - (74,989)
----------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Total comprehensive
expense for the year - - - - (74,989) (1,086) (76,075)
----------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Contributions by
and distributions
to owners
Issue of shares 25 106 775 - - - - 881
Effect of exercise
price below nominal
value 246 - (246) - - - -
Transfer on exercise
of
share options 27 - - (2,037) - - 2,037 -
Share-based payments 27 - - 15,695 - - - 15,695
----------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Total contributions
by and distributions
to owners 352 775 13,412 - - 2,037 16,576
----------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Balance at 31 December
2022 9,751 775 18,189 (793,216) (96,707) 1,329,481 468,273
----------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Tax impact of other comprehensive expense is US$nil.
The notes on this document form part of these financial
statements.
Ordinary Preference Share Share-based Currency Retained
share share premium payment Merger translation earnings
capital capital account reserve reserve reserve equity Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- -------- ---------- -------- ----------- -------- ------------ --------- --------
Balance at 1 January
2021 1,881 - - 331 - 1,378 14,201 17,791
Reorganisation accounting (1,881) - - - - - - (1,881)
-------------------------- -------- ---------- -------- ----------- -------- ------------ --------- --------
- - - 331 - 1,378 14,201 15,910
-------------------------- -------- ---------- -------- ----------- -------- ------------ --------- --------
Comprehensive income
for the year
Profit for the year - - - - - - 9,431 9,431
Other comprehensive
expense - - - - - (23,096) - (23,096)
-------------------------- -------- ---------- -------- ----------- -------- ------------ --------- --------
Total comprehensive
income/(expense) for
the year - - - - - (23,096) 9,431 (13,665)
-------------------------- -------- ---------- -------- ----------- -------- ------------ --------- --------
Tax impact of other comprehensive expense is US$nil.
The notes on this document form part of these financial
statements.
Ordinary Preference Share Share-based Currency
share share premium payment Merger translation Retained Total
capital capital account reserve reserve reserve earnings equity
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------- ---- --------- ---------- --------- ----------- --------- ------------ --------- --------
Contributions
by and
distributions
to owners
Issue of shares,
primary 25 124,147 71 384,856 - - - - 509,074
Issue of shares,
reorganisation 25 796,958 - - - (793,216) - - 3,742
Issue of shares,
other 25 313 - 969 - - - - 1,282
Exercise of share
options 27 4,064 - - (1,060) - - 1,060 4,064
Transfer on
exercise
of share options
pre reorganisation 27 - - - (637) - - - (637)
Effect of exercise
price below
nominal
value 25 14,381 - (14,381) - - - - -
Net costs on
issuance of shares
relating to
Initial
Public Offering 25 - - 1,930 - - - - 1,930
Capital reduction (930,464) - (373,374) - - - 1,303,838 -
Share-based
payments 27 - - - 6,143 - - - 6,143
Shares redeemed - (71) - - - - - (71)
------------------- ---- --------- ---------- --------- ----------- --------- ------------ --------- --------
Total contributions
by and
distributions
to owners 9,399 - - 4,446 (793,216) - 1,304,898 525,527
------------------- ---- --------- ---------- --------- ----------- --------- ------------ --------- --------
Balance at 31
December 2021 9,399 - - 4,777 (793,216) (21,718) 1,328,530 527,772
------------------- ---- --------- ---------- --------- ----------- --------- ------------ --------- --------
The notes on this document form part of these financial
statements.
Company statement of changes in equity
for the year ended 31 December 2022
Ordinary Share Share-based Currency
share premium payment Merger translation Retained Total
capital account reserve reserve reserve earnings equity
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Balance at 1 January
2022 9,399 - 4,497 (777,751) (23,486) 1,295,391 508,050
Comprehensive income
for the year
Profit for the year - - - - - 18,407 18,407
Other comprehensive
expense - - - - (56,220) - (56,220)
------------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Total comprehensive
income/(expense) for
the year - - - - (56,220) 18,407 (37,813)
------------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Contributions by and
distributions to owners
Issue of shares 25 106 775 - - - - 881
Effect of exercise
price below nominal
value 246 - (246) - - - -
Transfer on exercise
of share options - - (2,037) - - 2,037 -
Share-based payments 27 - - 15,695 - - - 15,695
------------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Total contributions
by and distributions
to owners 352 775 13,412 - - 2,037 16,576
------------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Balance at 31 December
2022 9,751 775 17,909 (777,751) (79,706) 1,315,835 486,813
------------------------- ---- -------- -------- ----------- --------- ------------ --------- --------
Tax impact of other comprehensive income/expense is US$nil.
The notes on this document form part of these financial
statements.
Ordinary Preference Share Share-based Currency
share share premium payment Merger translation Retained Total
capital capital account reserve reserve reserve earnings equity
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------ ---- --------- ---------- --------- ----------- --------- ------------ --------- ---------
Balance at
9 December
2020 - - - - - - - -
Comprehensive
expense for
the period
Loss for the
period - - - - - - (8,447) (8,447)
Other
comprehensive
expense - - - - - (23,486) - (23,486)
------------------ ---- --------- ---------- --------- ----------- --------- ------------ --------- ---------
Total
comprehensive
expense for
the period - - - - - (23,486) (8,447) (31,933)
------------------ ---- --------- ---------- --------- ----------- --------- ------------ --------- ---------
Contributions
by and
distributions
to owners
Issue of shares,
primary 25 124,147 71 384,856 - - - - 509,074
Issue of shares,
secondary 25 796,958 - - - - - - 796,958
Issue of shares,
other 25 313 - 969 - - - - 1,282
Exercise of
share options 27 4,064 - - - - - - 4,064
Reorganisation
accounting 25 - - - - (777,751) - - (777,751)
Effect of exercise
price below
nominal value 25 14,381 - (14,381) - - - - -
Net costs on
issuance of
shares relating
to Initial Public
Offering - - 1,930 - - - - 1,930
Capital reduction (930,464) - (373,374) - - - 1,303,838 -
Share-based
payments 27 - - - 4,497 - - - 4,497
Shares redeemed 25 - (71) - - - - - (71)
------------------ ---- --------- ---------- --------- ----------- --------- ------------ --------- ---------
Total
contributions
by and
distributions
to owners 9,399 - - 4,497 (777,751) - 1,303,838 539,983
------------------ ---- --------- ---------- --------- ----------- --------- ------------ --------- ---------
Balance at
31 December
2021 9,399 - - 4,497 (777,751) (23,486) 1,295,391 508,050
------------------ ---- --------- ---------- --------- ----------- --------- ------------ --------- ---------
Tax impact of other comprehensive income/expense is US$nil.
The notes on this document form part of these financial
statements.
Notes forming part of the consolidated financial statements
for the year ended 31 December 2022
1 General information
Alphawave IP Group plc (the 'Company') is a public limited
company whose shares are listed on the main market of the London
Stock Exchange and is incorporated and domiciled in England and
Wales. The address of its registered office is 6th Floor, 65
Gresham Street, London, United Kingdom, EC2V 7NQ.
The principal activities of the Company and its subsidiaries
(the 'Group') are detailed in the Directors' report.
2 Accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below. The
policies have been consistently applied to all the years presented,
unless otherwise stated.
The consolidated financial statements are presented in US$,
which is the Group's presentational currency. The ten trading
entities in the Group have different functional currencies.
Alphawave IP Inc. and Precise are now accounted for in US$, as the
primary economic environment has changed due to the proportion and
value of US$ transactions increasing. The functional currency
change commenced from 1 January 2022. Alphawave Semi US Corp.
(formerly Alphawave IP Corp.), Alphawave Semi International Corp.,
Alphawave IP Limited and Alphawave IP (BVI) Ltd are also in US$ and
the Company in GBP. Open -- Silicon Japan is in JPY, Open-Silicon
Research Private Ltd is in INR, Yuanfang Silicon Technology
(Nanjing) Co. Ltd is in RMB and Solanium Labs Ltd. is in ILS. The
currencies used by each entity reflect the functional currency of
that entity. However, it was decided to use US$ as the Group's
presentational currency as substantially all of the Group's
revenues and a significant part of the costs are denominated in US$
and it is typically the presentational currency used across the
semiconductor industry.
Amounts are rounded to the nearest thousand, unless otherwise
stated.
The consolidated financial statements of the Group (the
'consolidated financial statements') have been prepared in
accordance with UK-adopted international accounting standards
(UK-adopted IFRS). The Company has elected to prepare its parent
company financial statements in accordance with FRS 101; these are
presented on pages 26-27 and 28.
In preparing separate financial statements the Company has taken
advantage of certain disclosure exemptions conferred by FRS
101:
-- certain disclosures required under IFRS 15 Revenue from Contracts from Customers, including disaggregation of revenue, details of changes in contract assets and liabilities, and details of incomplete performance obligations;
-- paragraphs 91 to 99 of IFRS 13 Fair Value Measurement
(disclosure of valuation techniques and inputs used for fair value
measurement of assets and liabilities);
-- the requirement in paragraph 38 of IAS 1 Presentation of
Financial Statements to present comparative information in respect
of:
-- paragraph 79(a)(iv) of IAS 1;
-- paragraph 73(e) of IAS 16 Property, Plant and Equipment;
-- the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B,
38C, 38D, 40A, 40B, 40C, 40D, 111, 134 and 136 of IAS 1
Presentation of Financial Statements;
-- the requirements of IAS 7 Statement of Cash Flows;
-- the requirements of paragraphs 30 and 31 of IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors;
-- the requirements of paragraph 17 of IAS 24 Related Party
Disclosures to disclose key management personnel compensation and
18A of IAS 24 Related Party Disclosures to disclose amounts
incurred by the entity for provision of key management personnel
services that are provided by a separate management entity; and
-- the requirements in IAS 24 Related Party Disclosures to
disclose related party transactions entered into between two or
more members of a group, provided that any subsidiary which is a
party to the transaction is wholly owned by such a member.
The Company has taken advantage of the exemption allowed under
section 408 of the Companies Act 2006 and has not presented its own
statement of comprehensive income in these financial
statements.
In addition, and in accordance with FRS 101, further disclosure
exemptions have been applied because equivalent disclosures are
included in the consolidated financial statements:
-- the requirements of IFRS 7 Financial Instruments: Disclosures.
Where required, equivalent disclosures are given in the Group
financial statements.
The preparation of financial statements in compliance with
UK-adopted IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies. The areas where
significant judgements and estimates have been made in preparing
the financial statements and their effect are disclosed in note
3.
Basis of measurement
The financial statements have been prepared on the historical
cost basis except where IFRS requires an alternative treatment,
including certain financial instruments.
Changes in accounting policies
a) New standards, interpretations and amendments
The following amendments are effective for the period beginning
1 January 2022:
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);
-- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments
to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
-- References to Conceptual Framework (Amendments to IFRS 3).
Their adoption has not had any material impact on the
disclosures or on the amounts reported in these financial
statements.
b) New standards, interpretations and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early.
The following amendments are effective for the period beginning
1 January 2023:
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
-- Definition of Accounting Estimates (Amendments to IAS 8);
-- Deferred Tax Related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12);
-- IFRS 16 Leases (Amendment - Liability in a Sale and
Leaseback) Classification of Liabilities as Current or Non --
current (Amendments to IAS 1); and
-- IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-current).
The following is a list of other new and amended standards
which, at the time of writing, had been issued by the IASB but
which are effective in future periods:
-- IFRS 17 Insurance Contracts (including the June 2020 and
December 2021 Amendments to IFRS 17).
In June 2020, the IASB issued Amendments to IFRS 17 to address
concerns and implementation challenges that were identified after
IFRS 17 was published. The amendments defer the date of initial
application of IFRS 17 (incorporating the amendments) to annual
reporting periods beginning on or after 1 January 2023. At the same
time, the IASB issued Extension of the Temporary Exemption from
Applying IFRS 9 (Amendments to IFRS 4) that extends the fixed
expiry date of the temporary exemption from applying IFRS 9 in IFRS
4 to annual reporting periods beginning on or after 1 January
2023.
In December 2021, the IASB issued Initial Application of IFRS 17
and IFRS 9 - Comparative Information (Amendment to IFRS 17) to
address implementation challenges that were identified after IFRS
17 was published. The amendment addresses challenges in the
presentation of comparative information.
IFRS 17 must be applied retrospectively unless impracticable, in
which case the modified retrospective approach or the fair value
approach is applied. For the purpose of the transition
requirements, the date of initial application is the start of the
annual reporting period in which the entity first applies the
standard, and the transition date is the beginning of the period
immediately preceding the date of initial application.
The Directors are currently assessing the impact of IFRS 17 and
believe adoption of this standard will not have a material impact
on the financial statements. The Group established a captive
insurance subsidiary in 2022, but this was not providing Directors'
and officers' liability insurance to the Group during 2022.
The Directors do not expect any standards which have been issued
by the IASB, but are not yet effective, to potentially have a
material impact on the Group.
Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
Company and its subsidiaries (the 'Group') as if they formed a
single entity. Intercompany transactions and balances between Group
companies are therefore eliminated in full.
Joint ventures are accounted for using the equity method, where
the Group's share of post-acquisition profits and losses and other
comprehensive income is recognised in the consolidated statement of
comprehensive and other comprehensive income (except for losses in
excess of the Group's investment in the joint venture unless there
is an obligation to make good those losses).
Business combinations
The Company was incorporated on 9 December 2020. On 14 May 2021,
a reorganisation of Alphawave's corporate structure was completed,
which resulted in the Company being the sole owner of Alphawave IP
Inc. Pursuant to an agreement between the Company, Alphawave IP
Inc. and each of the members of Alphawave IP Inc., the issued and
outstanding Alphawave IP Inc. common shares were exchanged for 20
ordinary shares of the Company with a nominal value of GBP1. As
such, the Company issued 563,859,060 ordinary shares increasing its
share capital by this amount. At the time of the exchange, the net
assets of Alphawave IP Inc. had a book value of GBP13,589,766 which
was posted as an investment in the books of the Company and the
difference posted to the merger reserve, in line with merger
accounting as described below.
The merger reserve in the consolidated financial statements
reflects the difference between the share capital of the shares
issued in the Company of US$796,958 in exchange for the shares in
Alphawave IP Inc. and the share capital of Alphawave IP Inc. of
US$3,742 (as at the date of the reorganisation).
The Group reconstruction has been accounted for in accordance
with the principles of merger accounting, as a common control
transaction under IFRS 3.B1. Alphawave IP Inc was controlled by the
same individuals as Alphawave IP Group plc previously, and their
rights relative to each other were unchanged. Therefore, the
shareholders have a continuing interest in the business, both
before and after its transfer. Consequently, these financial
statements have been prepared as if Alphawave IP Group plc had
always been the holding company.
Other acquisitions are accounted for using the acquisition
method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the
acquisition-date fair values of assets transferred by the Group,
liabilities incurred by the Group to the former owners of the
acquiree and the equity interest issued by the Group in exchange
for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and
the liabilities assumed are recognised at their fair value.
Goodwill is measured as the excess of the sum of the
consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer's
previously held equity interest in the acquiree (if any) over the
net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. If, after reassessment, the
net of the acquisition-date amounts of the identifiable assets
acquired and liabilities assumed exceeds the sum of the
consideration transferred, the amount of any non-controlling
interests in the acquiree and the fair value of the acquirer's
previously held interest in the acquiree (if any), the excess is
recognised immediately in profit or loss as a bargain purchase
gain.
When the consideration transferred by the Group in a business
combination includes a contingent consideration arrangement, the
contingent consideration is measured at its acquisition-date fair
value and included as part of the consideration transferred in a
business combination.
Changes in fair value of the contingent consideration that
qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill.
Measurement period adjustments are adjustments that arise from
additional information obtained during the 'measurement period'
(which cannot exceed one year from the acquisition date) about
facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify as measurement period
adjustments depends on how the contingent consideration is
classified. Contingent consideration that is classified as equity
is not remeasured at subsequent reporting dates and its subsequent
settlement is accounted for within equity. Other contingent
consideration is remeasured to fair value at subsequent reporting
dates with changes in fair value recognised in profit or loss.
If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the
items for which the accounting is incomplete. Those provisional
amounts are adjusted during the measurement period (see above), or
additional assets or liabilities are recognised, to reflect new
information obtained about facts and circumstances that existed as
of the acquisition date that, if known, would have affected the
amounts recognised as of that date.
Going concern
As of 31 December 2022, the Group had cash and cash equivalents
of US$186.2m. Considering the Group's financial position as of 31
December 2022 and its principal risks and opportunities, a going
concern analysis has been prepared for the twelve-month period from
the date of signing the consolidated financial statements (the
going concern period) utilising realistic scenarios and applying
severe but plausible downside scenarios.
The Directors' assessment of the Group's ability to continue to
adopt the going concern basis of accounting is based on a review of
the base case scenario, including the going concern period,
ensuring that any relevant post-year end events have been factored
into the Directors' forecasts.
The Directors have also considered two severe, but plausible,
downside scenarios over the forecast period and the mitigating
actions that could be taken:
-- Group revenue forecasts, excluding joint venture revenue, are
materially reduced by 25% and the interest rate on our debt
materially increases by 2% with a controllable mitigating reduction
of 10% of operating expenditure and a reduction of 50% in
laboratory and prototyping operating and capital expenditure.
-- The Group's revenue from customers in China is excluded
entirely with no actions taken to reduce the cost base.
Under either scenario, the analysis demonstrates the Group can
continue to maintain sufficient liquidity headroom with no default
on debt covenants.
Therefore, the Directors believe the Group is adequately
resourced to continue in operational existence for at least the
going concern period. Accordingly, the Directors consider it
appropriate to adopt the going concern basis of accounting in
preparing the consolidated and Company financial statements.
Segment information
The Group's management has performed its evaluation for
reporting its reportable segments, if any, and concluded that the
Group's business constitutes only one operating segment as all its
products and services are of similar nature and focus on customers
from the same industry. Its entire revenues, expenses, assets and
liabilities pertain to the one business as a whole. This has been
ratified by the chief operating decision maker (CODM), Tony Pialis
(CEO), who is deemed best placed to evaluate the entity's operating
results to assess performance and to allocate resources. Therefore,
there was no information to be disclosed for operating
segments.
Revenue recognition
Revenue is recognised in accordance with IFRS 15 Revenue from
Contracts with Customers, upon transfer of control of promised
products or services to customers in an amount that reflects the
consideration the Group expects to be entitled to in exchange for
those products or services.
Revenue represents the consideration to which the Group expects
to be entitled in exchange for transferring goods or services to a
customer, excluding sales taxes, and, where applicable, including
estimates of rebates, product returns and other forms of variable
consideration. Variable consideration is included in revenue only
to the extent that we consider that it is highly probable that a
significant reversal in the amount of cumulative revenue recognised
will not occur when the uncertainty associated with the variable
consideration is subsequently resolved.
The Group has the following principal revenue streams:
-- IP Products & Support - Contracts with customers to
license intellectual property (IP) products, which consist
primarily of software files that customers use to create, integrate
and operate functional building blocks within a semiconductor
device. Such contracts typically include the provision of support
to customers during the integration of the IP product into their
chip design ('integration support') and when ensuring that the IP
product is functional within the resulting chip ('bring up
support').
-- Custom Silicon - Contracts with customers to develop custom
silicon products that can include various combinations of IP
provided by the Group, IP provided by third parties, other
third-party costs required to prototype the device and the Group's
internal engineering costs.
-- Supply of silicon products - Contracts with customers for the
supply of silicon devices that are developed by the Group to the
customer's specification.
-- Reseller fees - Fees receivable under the three-year
exclusive IP subscription reseller agreement with VeriSilicon that
expires in 2024.
-- Income from joint venture - Fees receivable under the
five-year IP subscription licence agreement with WiseWave that
expires in 2026.
IP Products & Support
The Group's IP products are typically licensed under standard
pay-per-use licence agreements and are delivered over the period
its customers are developing their semiconductor devices, which can
span several years.
The Group licenses two different types of IP product:
-- hard IP, which has to be specifically tailored for different
manufacturing process technologies, as it contains analogue
circuitry whose characteristics may change depending on the
manufacturing process; and
-- soft IP, which typically contains only digital circuitry and
where computer-aided design tools can enable the IP to work with
different manufacturing processes.
Prior to the acquisitions of Precise-ITC and OpenFive, the Group
licensed only hard IP products.
Contracts to license the Group's IP products specify the
consideration to be paid by the customer, based on the specific IP
products licensed and the amount of any non -- recurring
engineering (NRE) required. Invoicing is typically aligned with the
achievement of project milestones. Support services are generally
separately priced within the contract and are invoiced on an annual
basis. Where a contract involves more than one performance
obligation, we allocate the transaction price to the performance
obligations based on their relative stand-alone selling prices.
Hard IP
Due to the complexity of the IP products being delivered and the
need for customers to integrate the IP products with other IP
building blocks in their chip designs, the Group's IP products are
typically delivered in multiple stages, referred to as IP views,
all of which require some level of customisation and/or
configuration. Although delivery of the licensed IP products is
split over multiple deliveries of IP views, these deliveries are
not distinct because each IP view is highly dependent on or
interrelated with one or more of the other IP views. Further, we do
not consider any NRE work required to configure the IP products to
be distinct because customers are unable to benefit from the IP
views on their own or together with other resources readily
available to them, due to the bespoke nature of the configuration
that the Group performs on the hard IP products. We therefore
consider that the delivery of the IP views and the configuration of
the IP products represents a single performance obligation.
We recognise revenue on hard IP products by reference to the
stage of completion of the project, measured based on the
engineering hours spent on work performed to date as a percentage
of the estimated total project hours.
Soft IP
While the initial delivery of IP may not be to a customer's
exact specification, customers are able to use the IP without
significant modification and therefore benefit from it on its own
or together with resources readily available to them. We therefore
consider the initial delivery of IP to be a separate performance
obligation. We consider any customisation work and subsequent IP
deliveries to be a single separate performance obligation because
they are distinct from the initial IP delivery but are highly
dependent or interrelated with each other.
We recognise revenue on the initial IP when the IP is delivered
to the customer.
We recognise revenue on customisation and subsequent IP
deliveries by reference to the stage of completion of the project
and achievement of specific contractual milestones when successive
deliveries of customised IP are made.
Support
Support services are considered a separate performance
obligation from delivery of the IP products because customers could
benefit from the services on their own or with other resources that
are readily available to them.
Our obligation to provide support services is a stand-ready
obligation over a specified period, the timing of which is
uncertain and there is typically no maximum number of hours stated
in the contract. Revenue from support services is therefore
recognised on a straight-line basis over the contractual period of
support provision.
Custom Silicon
The Group engages with customers to develop custom silicon
products and, if those products go into production, to supply them
to those customers. Custom silicon development contracts vary
according to the proportion of the engineering work that the Group
is required to undertake. For example, the customer may provide a
specification only, with the Group designing, implementing and
manufacturing the resulting chip, utilising third-party
manufacturers. Alternatively, a customer may provide their own
design, and only utilise the Group's supply chain infrastructure to
manage the manufacturing of the chip. All custom silicon contracts
specify that the Group owns the unique mask set of the chip design
and, therefore, if the resulting chip goes into production, it can
only be supplied to the customer by us. Equally, however, the
customer controls the chip design because the Group cannot use it
for any purpose other than to manufacture chips for the
customer.
Custom silicon development projects are typically complex and
highly customised with detailed engineering schedules and
deliverables. A custom silicon project may include internal
engineering services, our IP, IP support services, third-party IP,
tooling costs and prototypes. While these elements are capable of
being distinct, they are not distinct in the context of the
contract. Each deliverable is highly dependent on or interrelated
with one or more of the other goods or services in the contract and
the nature of the obligation is to deliver a combined output in the
form of a completed design or prototype. We therefore consider
custom silicon development to be a single performance
obligation.
We consider that the supply of chips following release to
production is a separate performance obligation which arises on
receipt of a silicon purchase order from the customer. Custom
silicon contracts do not contain purchase volume commitments and
therefore the supply of chips is not only capable of being
distinct, but is also distinct in the context of the contractual
arrangements.
Custom silicon contracts specify the consideration receivable
for the custom design work, including any third -- party
components, as well as pricing for any subsequent silicon orders.
Pricing of the design work will depend on factors including chip
complexity, manufacturing process technology and IP costs.
Invoicing for development work is typically aligned with the
achievement of project milestones. Contracts are typically
cancellable by the customer for convenience during the design
phase. In the event of cancellation, the customer will be liable to
make payment corresponding to a future contract milestone or a
specified fixed percentage of the contract value.
We recognise revenue on custom silicon development projects by
reference to the stage of completion of the project, measured based
on the costs incurred for work performed to date as a percentage of
the estimated total development costs.
Supply of silicon products
Silicon products are physical goods held as inventory with
revenue recognised at a point in time when the customer obtains
control of the products. Accordingly, where products are sold on
'ex-works' incoterms, revenue is recognised when the products are
released for collection by the customer. Otherwise, revenue is
recognised when the products are delivered to the customer. Where
products are supplied on a consignment basis, delivery takes place
and revenue is recognised when the products are taken out of the
consignment by the customer.
Reseller fees
VeriSilicon licenses the Group's IP products to third-party
customers under a three-year exclusive IP subscription reseller
agreement. Under the agreement, we charge VeriSilicon exclusivity
fees for each calendar year that we invoice to them and collect on
a quarterly basis. The exclusivity fees represent minimum annual
payments by VeriSilicon against which it can offset purchases of IP
products for license to third parties at any time during the
relevant calendar year. We recognise revenue on the licensing of
our IP products to third parties under the agreement by reference
to the stage of completion of the related customisation and/or
integration project, measured based on the engineering hours spent
on work performed to date as a percentage of the estimated total
project hours. Any unutilised exclusivity payments cannot be
carried forward by VeriSilicon to future calendar years. We
therefore recognise any unutilised exclusivity payments as
additional revenue at the end of the calendar year.
Income from joint venture
We have a subscription licence agreement with WiseWave that
provides them with right of use over a library of our IP products
for a fixed fee spread over a period of five years. As we do not
usually provide individual licences without NRE to customers it is
difficult to determine the standalone selling price of each of the
IP products. Based on engineering schedules, we therefore estimated
the total number of IP products that we expect to provide into the
library over the duration of the agreement in order to calculate
the estimated unit price of the IP products. Given that the number
of products to be put into the library in the future is uncertain,
the estimated unit price of the IP products constitutes variable
consideration. We therefore exercise judgement in applying
constraints to the unit price of the IP products in order to
minimise the risk of significant reversals of revenue in future
periods. Revenue on this agreement is recognised at a point in time
when an IP product is added to the library, as this is when we
consider control of the IP product is transferred to WiseWave.
Contract modifications
A contract modification is a change in the scope or price (or
both) of a contract that is approved by the parties to the
contract.
Modifications to our IP products and custom silicon development
contracts with customers do not normally involve the addition of
goods or services that are distinct from those already being
provided under the contract. Such modifications are therefore
accounted for as an adjustment to the existing contract rather than
as a separate contract. Accordingly, the effect that the
modification has on the transaction price and/or on the measure of
progress to completion of the contract is recognised as a
cumulative catch-up adjustment to revenue when the modification is
approved.
Contract balances
Contract assets represent the amount of revenue recognised on IP
and product development contracts that has not yet been billed to
the customer.
Contract liabilities represent amounts billed to customers in
excess of revenue recognised on IP and product development
contracts.
Costs of obtaining contracts
Incremental costs of obtaining a contract with an expected
duration of more than one year are recognised as an asset that is
amortised over the period of the contract in proportion to the
recognition of the revenue receivable on the contract.
As permitted by IFRS 15, the costs of obtaining contracts with
an expected duration of one year or less are expensed as they are
incurred.
Onerous contracts
If a contract with a customer is considered to be onerous, a
provision is recognised to the extent that the remaining
unavoidable costs of meeting the obligations under the contract
exceed the remaining benefits to be received under it.
Strategic, integration and other non-recurring items
The Group incurred costs from certain strategic, integration and
other non-recurring items, e.g. acquisition-related costs and
Initial Public Offering costs. Management has disclosed these
separately to enable a greater understanding of the underlying
results of the trading business so that the underlying run rate of
the business can be established and compared on a like-for-like
basis each year.
Defined contribution schemes
Contributions to defined contribution pension schemes are
charged to the consolidated statement of comprehensive income in
the year to which they relate.
Government grants
Government grants received for qualifying expenditure are netted
against the cost incurred by the Group. Where retention of a
government grant is dependent on the Group satisfying certain
criteria, it is initially recognised as deferred income. When the
criteria for retention have been satisfied, the deferred income
balance is released to the consolidated statement of comprehensive
income or netted against the asset purchased.
Share-based payments
The Group operates an equity-settled, share-based payment
compensation plan, under which the entity receives services from
employees as consideration for equity instruments, options and
RSUs, of the Group. The fair value of the employee service received
in exchange for the grant of the options is recognised as an
expense over the vesting period.
Share options and RSUs granted to employees are accounted for
under the fair value-based method of accounting using fair value
for the underlying equity instrument. Fair values are determined in
accordance with the Black-Scholes-Merton option-pricing model
(BSM). Management exercises judgement in determining the underlying
share price volatility, expected forfeitures and other parameters
of the calculations. Share options and RSUs granted to service
providers are valued using fair value of services obtained, and if
that is not determinable, at the fair value of the underlying
equity instrument as per BSM.
Where options and RSUs are exercised, the Company issues new
shares and the proceeds received, net of any directly attributable
transaction costs, are credited to share capital.
If an option or RSU is cancelled this is accounted for as an
acceleration of the vesting period and any amount unrecognised is
recognised immediately.
Upon expiry of the options or RSUs, the value that had been
ascribed to the expired options or RSUs remains in the share-based
payment reserve.
When terms of the options or RSUs are modified at a future date,
the fair value of the options or RSUs are adjusted for the new
terms using the BSM. Any difference in fair value is adjusted as a
change to share-based payment reserve and share-based payment
expense.
Research and development
Research costs are expensed as incurred. Development
expenditures on an individual project are recognised as an
intangible asset when the Group can demonstrate:
-- the technical feasibility of completing the intangible asset
so that it will be available for use or sale;
-- its intention to complete the asset and to use or sell it;
-- the ability to use or sell the intangible asset;
-- how the asset will generate future economic benefits;
-- the availability of resources to complete the asset; and
-- the ability to measure reliably the expenditure during development.
Foreign currency
Transactions entered into by Group entities in a currency other
than the currency of the primary economic environment in which they
operate (their functional currency) are recorded at the rates
ruling when the transactions occur. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the
reporting date. Exchange differences arising on the retranslation
of unsettled monetary assets and liabilities are recognised
immediately in the consolidated statement of comprehensive
income.
On consolidation, the results of overseas operations are
translated into US$ at rates approximating to those ruling when the
transactions took place. All assets and liabilities of overseas
operations are translated at the rate ruling at the reporting date.
Exchange differences arising on translating the opening net assets
at opening rate and the results of overseas operations at actual
rate are recognised in other comprehensive income and accumulated
in the foreign exchange reserve.
Exchange differences recognised in profit or loss in Group
entities' separate financial statements on the translation of
long-term monetary items forming part of the Group's net investment
in the overseas operation concerned are reclassified to other
comprehensive income and accumulated in the foreign exchange
reserve on consolidation.
Interest income
Interest income is recorded on an accrual basis and is included
in finance income in the consolidated statement of comprehensive
income. Interest income from customers is recognised monthly at an
agreed annual interest rate over the period in the contract.
Interest income from contracts with customers that contain a
significant financing component is recognised monthly over the
period of the contract at an annual interest rate that is
determined by reference to then-current market interest rates and
is included in finance income in the consolidated statement of
comprehensive income. Where contracts with customers contain a
significant financing component, the consideration due (against
which revenue is recognised) is adjusted for the value of the
implied interest income.
Borrowing costs
Interest expense is recognised on the basis of the effective
interest method and is included in finance expense in the
consolidated statement of comprehensive income.
Taxation
The tax expense for the year comprises current and deferred tax.
Tax is recognised in the consolidated statement of comprehensive
income, except that a charge attributable to an item of income or
expense recognised as other comprehensive income is also recognised
directly in other comprehensive income.
The current tax charge is calculated on the basis of tax rates
and laws that have been enacted or substantively enacted by the
reporting date in the countries where the Group operates and
generates taxable income.
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting nor taxable profit;
and
-- investments in subsidiaries and joint arrangements where the
Group is able to control the timing of the reversal of the
difference and it is probable that the difference will not reverse
in the foreseeable future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
reporting date and are expected to apply when the deferred tax
liabilities are settled.
When there is uncertainty concerning the Group's filing position
regarding the tax bases of assets or liabilities, the taxability of
certain transactions or other tax-related assumptions, then the
Group:
-- considers whether uncertain tax treatments should be
considered separately, or together as a group, based on which
approach provides better predictions of the resolution;
-- determines if it is probable that the tax authorities will
accept the uncertain tax treatment; and
-- if it is not probable that the uncertain tax treatment will
be accepted, measures the tax uncertainty based on the most likely
amount or expected value, depending on whichever method better
predicts the resolution of the uncertainty. This measurement is
required to be based on the assumption that each of the tax
authorities will examine amounts they have a right to examine and
have full knowledge of all related information when making those
examinations.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- the same taxable Group company; or
-- different Group entities which intend either to settle
current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets
or liabilities are expected to be settled or recovered.
Sales made to customers incorporated in overseas jurisdictions
may be subject to withholding tax. Since invoices are raised by
Group entities which operate under the tax authorities in Canada
and the US, to the extent those countries have tax treaties in
place with those overseas jurisdictions, withholding tax amounts
are treated as prepaid tax and offset against corporation taxes
payable.
Goodwill
Goodwill represents the excess of the cost of a business
combination over the Group's interest in the fair value of
identifiable assets, liabilities and contingent liabilities
acquired.
Cost comprises the fair value of assets given, liabilities
assumed and equity instruments issued, plus the amount of any
non-controlling interests in the acquiree plus, if the business
combination is achieved in stages, the fair value of the existing
equity interest in the acquiree. Direct costs of acquisition are
recognised immediately as an expense.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
statement of comprehensive income. Where the fair value of
identifiable assets, liabilities and contingent liabilities exceed
the fair value of consideration paid, the excess is credited in
full to the consolidated statement of comprehensive income on the
acquisition date. Goodwill is not amortised but is reviewed for
impairment at least annually.
The Group performs an impairment test for non-financial assets
(excluding inventories, deferred tax assets and retirement benefit
assets) if there is any indication that the recoverable amount will
be less than the carrying amount. However, for goodwill or
intangible assets with indefinite useful life or that are not yet
available for use, an impairment test is performed at a certain
time each fiscal year and when any signs of impairment exist. The
impairment test is performed by comparing the carrying amount and
the recoverable amount of the assets, and if the recoverable amount
falls below the carrying amount, an impairment loss is
recorded.
The recoverable amount is calculated mainly using the discounted
cash flow model, where certain assumptions, including, but not
limited to, the useful life of the asset, future cash flows, sales
revenue, gross margin, discount rate, and long-term growth rate,
are made.
These assumptions are determined based on judgements of
management but could be influenced by fluctuations in uncertain
future economic conditions. If a revision becomes necessary, it
could have a significant impact on the amounts that will be
recognised in the consolidated financial statements of subsequent
periods. The calculation method of the recoverable amount is stated
in note 16, Impairment of non-financial assets.
Intangible assets
Intangible assets are carried at cost less accumulated
amortisation and impairment.
Intangible assets are recognised on business combinations if
they are separable from the acquired entity or give rise to other
contractual/legal rights and the amounts can be reliably estimated.
The amounts ascribed to such intangibles are arrived at by using
appropriate valuation techniques.
The significant intangibles recognised by the Group and their
useful economic lives are as follows:
Developed IP - 5 years
Developed technology - 4-8 years
Customer relationships - 12 years
Expenditure on developed IP is capitalised if it can be
demonstrated that:
-- it is technically feasible to develop the IP for it to be sold;
-- adequate resources are available to complete the development;
-- there is an intention to complete and sell the IP;
-- sale of the IP will generate future economic benefits; and
-- expenditure on the project can be measured reliably.
Property and equipment
Property and equipment are carried at cost less accumulated
depreciation and impairment losses, if any. Cost includes initial
cost and subsequent expenditures that are directly attributable to
the related asset when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the
item can be measured reliably. All other repair and maintenance
costs are charged to the consolidated statement of comprehensive
income during the year they are incurred.
Depreciation is provided on items of property and equipment so
as to write off their carrying value over their expected useful
economic lives. It is provided at the following rates:
Computer equipment - 50% straight line
Furniture and fixtures - 20% straight line
Leasehold improvements - 40% straight line
Lab equipment - 50% straight line
Property and equipment acquired during the year are depreciated
from the date the asset is available for use as intended until the
date of derecognition. The residual values and useful lives are
reviewed by management at each reporting date and adjusted if the
impact on depreciation is significant. Property and equipment are
regularly reviewed to eliminate obsolete items.
An item of property and equipment is derecognised upon disposal
or when no future economic benefits are expected from its use. Any
gain or loss arising on derecognition of the asset is included in
the consolidated statement of comprehensive income in the year the
asset is derecognised.
Impairment of tangible and intangible assets
The carrying amounts of the Group's non-financial assets (other
than inventories, contract assets and deferred tax assets) are
reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, then the
asset's recoverable amount is estimated. Goodwill and assets still
under development are tested annually for impairment.
For impairment testing, assets are grouped together into the
smallest group of assets that includes the asset and generates cash
inflows from continuing use that are largely independent of the
cash inflows of other assets or cash generating units (CGUs).
Goodwill is allocated to CGUs or groups of CGUs that are expected
to benefit from the synergies of the related business
combination.
An impairment loss is recognised if the carrying amount of an
asset or CGU exceeds its recoverable amount. The recoverable amount
of an asset or CGU is the higher of its value-in-use and its fair
value less costs of disposal. The value-in-use of an asset or CGU
represents the present fair value of the future cash flows expected
to be derived from the asset in its current use and condition. Fair
value less costs of disposal is the amount expected to be
obtainable from the sale of the asset in an arm's length
transaction between knowledgeable, willing parties, less the costs
of disposal. Value-in-use is based on pre-tax estimates of pre-tax
cash flows in the periods covered by budgets and/or plans that have
been approved by the Board. Such cash flow estimates are discounted
at a pre-tax discount rate that reflects the current market
assessments of the time value of money and the risks specific to
the asset of CGU to which the asset belongs.
Impairment losses are recognised in profit or loss. They are
allocated first to reduce the carrying amount of any goodwill
allocated to the CGU, and then to reduce the carrying amounts of
the other assets in the CGU on a pro rata basis.
Impairment losses in respect of goodwill are not reversed. For
other assets, impairment losses recognised in previous periods are
reversed if there has been a change in the estimates used to
determine the asset's recoverable amount, but only to the extent
that the asset's carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been
recognised in previous periods.
Leases
Identifying leases
The Group accounts for a contract, or a portion of a contract,
as a lease when it conveys the right to use an asset for a period
of time in exchange for consideration. Leases are those contracts
that satisfy the following criteria:
-- there is an identified asset;
-- the Group obtains substantially all the economic benefits from use of the asset; and
-- the Group has the right to direct use of the asset.
The Group considers whether the supplier has substantive
substitution rights. If the supplier does have those rights, the
contract is not identified as giving rise to a lease.
In determining whether the Group obtains substantially all the
economic benefits from use of the asset, the Group considers only
the economic benefits that arise from the use of the asset, not
those incidental to legal ownership or other potential
benefits.
In determining whether the Group has the right to direct use of
the asset, the Group considers whether it directs how and for what
purpose the asset is used throughout the period of use. If there
are no significant decisions to be made because they are
pre-determined due to the nature of the asset, the Group considers
whether it was involved in the design of the asset in a way that
predetermines how and for what purpose the asset will be used
throughout the period of use. If the contract or portion of a
contract does not satisfy these criteria, the Group applies other
applicable IFRSs rather than IFRS 16.
All leases are accounted for by recognising a right-of-use asset
and a lease liability except for:
-- leases of low-value assets; and
-- leases with a term of twelve months or less.
The Group has elected to use the recognition exemptions listed
above and thus does not apply the right-of-use asset and lease
liability measurement requirements to these items. Leases of
low-value assets and short-term leases are expensed on a
straight-line basis over the life of the lease.
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease unless (as is typically the case) this is not readily
determinable, in which case the Group's incremental borrowing rate
on commencement of the lease is used. Variable lease payments are
only included in the measurement of the lease liability if they
depend on an index or rate. In such cases, the initial measurement
of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments
are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease
liability also includes:
-- amounts expected to be payable under any residual value guarantee;
-- the exercise price of any purchase option granted in favour
of the Group if it is reasonably certain to exercise that option;
and
-- any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of the termination
option being exercised.
Right-of-use assets are initially measured at the amount of the
lease liability, reduced for any lease incentives received, and
increased for:
-- lease payments made at or before commencement of the lease;
-- initial direct costs incurred; and
-- the amount of any provision recognised where the Group is
contractually required to dismantle, remove or restore the leased
asset (typically leasehold dilapidations).
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use
assets are amortised on a straight-line basis over the remaining
term of the lease or over the remaining economic life of the asset
if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease
(because, for example, it reassesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted at the same
discount rate that applied on lease commencement. The carrying
value of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate or index is
revised. In both cases an equivalent adjustment is made to the
carrying value of the right-of-use asset, with the revised carrying
amount being amortised over the remaining (revised) lease term.
Where a variable lease payment that is dependent on an index or
rate is present in the lease, the lease liability and right-of --
use asset is re-measured once the rate is known. Any variable lease
payments that are not dependent on an index or rate are expensed in
the period they are incurred.
When the Group renegotiates the contractual terms of a lease
with the lessor, the accounting depends on the nature of the
modification:
-- if the renegotiation results in one or more additional assets
being leased for an amount commensurate with the standalone price
for the additional rights-of-use obtained, the modification is
accounted for as a separate lease in accordance with the above
policy;
-- in all other cases where the renegotiation increases the
scope of the lease (whether that is an extension to the lease term,
or one or more additional assets being leased for an amount that is
not commensurate with the standalone price for the additional
rights-of -- use obtained), the lease liability is remeasured using
the discount rate applicable on the modification date, with the
right-of-use asset being adjusted by the same amount; and
-- if the renegotiation results in a decrease in the scope of
the lease, both the carrying amount of the lease liability and
right-of-use assets are reduced by the same proportion to reflect
the partial or full termination of the lease with any difference
recognised in profit or loss. The lease liability is then further
adjusted to ensure its carrying amount reflects the amount of the
renegotiated payments over the renegotiated term, with the modified
lease payments discounted at the rate applicable on the
modification date. The right-of-use asset is adjusted by the same
amount.
For contracts that both convey a right to the Group to use an
identified asset and require services to be provided to the Group
by the lessor, the Group has elected to account for the entire
contract as a lease, i.e. it does not allocate any amount of the
contractual payments to, and account separately for, any services
provided by the supplier as part of the contract.
Investments in subsidiaries
Investments in subsidiaries in the Company financial statements
are carried at cost less any provision for losses arising on
impairment.
Investments in joint ventures
The Group is a party to a joint arrangement when there is a
contractual arrangement that confers joint control over the
relevant activities of the arrangement to the Group and at least
one other party. Joint control is assessed under the same
principles as control over subsidiaries.
Joint ventures are initially recognised in the consolidated
statement of financial position at cost. Subsequently joint
ventures are accounted for using the equity method, where the
Group's share of post-acquisition profits and losses and other
comprehensive income is recognised in the consolidated statement of
comprehensive income (except for losses in excess of the Group's
investment in the joint venture unless there is an obligation to
make good those losses).
Profits and losses arising on transactions between the Group and
its joint ventures are recognised only to the extent of unrelated
investors' interests in the joint venture. The Group's share in the
joint venture's profits and losses resulting from these
transactions is eliminated against the carrying value of the joint
venture.
Any premium paid for a joint venture above the fair value of the
Group's share of the identifiable assets, liabilities and
contingent liabilities acquired is capitalised and included in the
carrying amount of the joint venture. Where there is objective
evidence that the investment in the joint venture has been impaired
the carrying amount of the investment is tested for impairment in
the same way as other non-financial assets.
Investment tax credits
Investment tax credits receivable are amounts recoverable from
the Canadian federal and provincial government under the SRED
incentive programme. These tax credits are not received in cash,
they are netted off against the Group's current tax charge. The
amounts that are claimed under the programme represent the amounts
submitted by management based on research and development costs
paid during the year and include a number of estimates and
assumptions made by management in determining the eligible
expenditures. Investment tax credits are recorded when there is
reasonable assurance that the Group will realise the investment tax
credits receivable and are netted against the related expenditure.
Recorded investment tax credits are subject to review and approval
by tax authorities and therefore amounts eventually netted off
against the Group's current tax charge may be different from the
amounts recorded.
Inventories
The acquisition cost of inventories comprises all costs of
purchase, costs of conversion and all other costs incurred in
bringing the inventories to their present location and
condition.
Inventories are stated at the lower of cost and net realisable
value. Cost comprises direct materials and, where applicable,
direct labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition.
Cost is calculated using the weighted average cost method. Net
realisable value represents the estimated selling price less all
estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Short-term employee benefits
A liability is recognised for benefits accruing to employees in
respect of wages and salaries, annual leave and sick leave in the
period the related service is rendered at the undiscounted amount
of the benefits expected to be paid in exchange for that
service.
Cash and cash equivalents
Cash and cash equivalents include cash and liquid investments
with a term to maturity of 90 days or less at the reporting
date.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group's consolidated statement of financial position when the Group
becomes a party to the contractual provisions of the
instrument.
Financial assets and financial liabilities are initially
measured at fair value. Except for financial assets and financial
liabilities measured at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition
or issuance of financial assets and financial liabilities are added
to or deducted from the fair value of the financial assets or
financial liabilities, as appropriate, upon initial recognition.
Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
Financial assets
All recognised financial assets are measured subsequently in
their entirety at either amortised cost or fair value, depending on
the classification of the financial assets. The classification and
measurement of financial assets after initial recognition at fair
value depends on the business model for managing the financial
asset and the contractual terms of the cash flows. Financial assets
are classified in one of the three categories:
a) Amortised cost
Financial assets that are debt instruments and are held within a
business model whose objective is to collect the contractual cash
flows, and that have contractual cash flows that are solely
payments of principal and interest (SPPI) on the principal
outstanding, are measured at amortised cost at each subsequent
reporting period. The Group classifies accounts receivable and
notes receivable as financial assets that are subsequently measured
at amortised cost.
b) Fair value through other comprehensive income
The Group and Company do not have any financial assets
classified as being at fair value through other comprehensive
income.
c) Fair value through profit or loss
Financial assets that do not meet the criteria for being
measured at amortised cost or fair value through other
comprehensive income are measured subsequently at fair value
through profit or loss. Trading financial instruments are
mandatorily measured at fair value through profit or loss as they
are held for trading purposes or are part of a business model with
a pattern of short-term profit taking. Non-trading financial assets
are also mandatorily measured at fair value through profit or loss
if their contractual cash flow characteristics do not meet the SPPI
test or if they are managed together with other financial
instruments on a fair value basis. In addition, the Group may, at
initial recognition, make an irrevocable election to designate a
financial asset as fair value through profit or loss. A financial
asset is designated as fair value through profit or loss when such
classification eliminates or significantly reduces a measurement
inconsistency that would otherwise arise from measuring the
financial asset on a different basis. Gains and losses realised on
disposition and unrealised gains and losses from changes in fair
value of the financial assets are recognised in the consolidated
statement of comprehensive income.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
(ECL) on accounts receivable that are measured at amortised cost.
The Group applies the simplified approach for accounts receivable
and recognises the lifetime ECL for these assets. The ECL on
accounts receivable is estimated using a provision matrix based on
the Group's historical credit loss experience, adjusted for factors
that are specific to the customers, and general current and
forecasted economic conditions at the reporting date, including
time value of money where appropriate.
For all other financial assets measured at amortised cost or
fair value through other comprehensive income, the Group recognises
lifetime ECL only when there has been a significant increase in
credit risk since initial recognition. If the credit risk on such
financial instruments has not increased significantly since initial
recognition, the Group measures the loss allowance on those
financial instruments at an amount equal to twelve months' ECL.
Lifetime ECL represents the ECL that will result from all
possible default events over the expected life of a financial
asset. In contrast, twelve-month ECL represents the portion of
lifetime ECL that is expected to result from default events on a
financial asset that are possible within twelve months after the
reporting date.
In assessing whether the credit risk on a financial asset has
increased significantly since initial recognition, the Group
compares the risk of default occurring on the financial asset at
the reporting date with the risk of default occurring at initial
recognition. The Group considers both quantitative and qualitative
factors that are supportable, including historical experience and
forward-looking information that is available without undue cost or
effort.
Irrespective of the above assessment, the Group presumes that
the credit risk on a financial asset has increased significantly
since initial recognition when contractual payments are more than
30 days past due, unless the Group has reasonable and supportable
information that demonstrates otherwise. Despite the foregoing, the
Group presumes that the credit risk on a financial asset has not
increased significantly since initial recognition if the financial
asset is determined to have low credit risk at the reporting
date.
The Group regularly monitors the effectiveness of the criteria
used to identify whether there has been a significant increase in
credit risk and revises them as appropriate to ensure that the
criteria are capable of identifying a significant increase in
credit risk before the amount becomes past due.
Definition of default
For internal credit risk management purposes, the Group
considers a financial asset not recoverable if the customer balance
owing is 180 days past due and information obtained from the
customer and other external factors indicate that the customer is
unlikely to pay its creditors in full.
Credit-impaired financial assets
A financial asset is credit-impaired when one or more events
that have a detrimental impact on the estimated future cash flows
of that financial asset have occurred. Evidence that a financial
asset is credit-impaired include observable data about the
following events:
a) significant financial difficulty of the issuer or the counterparty;
b) a breach of contract, such as a default or past due event;
c) the lender(s) of the debtor, for economic or contractual
reasons relating to the debtor's financial difficulty, having
granted to the debtor a concession(s) that the lender(s) would not
otherwise consider;
d) it is becoming probable that the debtor will enter bankruptcy
or other financial reorganisation; and
e) the disappearance of an active market for that financial
asset because of financial difficulties.
Write-off policy
The Group writes off and derecognises a financial asset when
there is information indicating that the debtor is in severe
financial difficulty and there is no realistic prospect of
recovery.
Derecognition of financial assets
The Group derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity. If the
Group neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and
an associated liability for amounts it may have to pay. If the
Group retains substantially all the risks and rewards of ownership
of a transferred financial asset, the Group continues to recognise
the financial asset and also recognises a collateralised borrowing
for the proceeds received.
On derecognition of a financial asset measured at amortised
cost, the difference between the asset's carrying amount and the
sum of the consideration received and receivable is recognised in
profit or loss. In addition, on derecognition of an investment in a
debt instrument classified at fair value through other
comprehensive income, the cumulative gain or loss previously
accumulated in the investments revaluation reserve is reclassified
to profit or loss. In contrast, on derecognition of an investment
in an equity instrument which the Group has designated on initial
recognition to measure at fair value through other comprehensive
income, the cumulative gain or loss previously accumulated in the
investments revaluation reserve is not reclassified to profit or
loss, but is transferred to retained earnings.
Financial liabilities
All financial liabilities are measured subsequently at amortised
cost using the effective interest method or at fair value through
profit or loss.
Financial liabilities are classified as at fair value through
profit or loss when the financial liability is:
a) contingent consideration of an acquirer in a business combination;
b) held for trading; or
c) designated as at fair value through profit or loss.
A financial liability is classified as held for trading if it
has been acquired principally for the purpose of repurchasing it in
the near term or on initial recognition it is part of a portfolio
of identified financial instruments that the Group manages together
and has a recent actual pattern of short-term profit-taking, or it
is a derivative financial liability.
A financial liability other than a financial liability held for
trading or contingent consideration of an acquirer in a business
combination may be designated as at fair value through profit or
loss upon initial recognition if such designation eliminates or
significantly reduces a measurement or recognition inconsistency
that would otherwise arise or the financial liability forms part of
a group of financial assets or financial liabilities or both, which
is managed and its performance is evaluated on a fair value basis,
in accordance with the Group's documented risk management or
investment strategy, and information about the grouping is provided
internally on that basis.
Financial liabilities classified or designated at fair value
through profit or loss are measured at fair value, with any gains
or losses arising on changes in fair value recognised in profit or
loss. However, for financial liabilities that are designated as
fair value through profit or loss, the amount of change in the fair
value of the financial liability that is attributable to changes in
the credit risk of the issuer is recognised in other comprehensive
loss, unless the recognition of the effects of changes in the
liability's credit risk in other comprehensive loss would create or
enlarge an accounting mismatch in profit or loss. The remaining
amount of change in the fair value of a liability is recognised in
profit or loss. Changes in fair value attributable to a financial
liability's credit risk that are recognised in other comprehensive
loss are not subsequently reclassified to profit or loss; instead,
they are transferred to retained earnings upon derecognition of the
financial liability.
The Group classifies accounts payable, accrued liabilities and
lease liabilities at amortised cost.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or have
expired. The difference between the carrying amount of the
financial liability derecognised and the consideration paid and
payable is recognised in profit or loss.
Share capital
Ordinary shares are classified as equity. Equity instruments are
measured at the fair value of the cash or other resources received
or receivable, net of the direct costs of issuing the equity
instruments. If payment is deferred and the time value of money is
material, the initial measurement is on a present value basis.
Stabilisation programme
In the prior year, as part of the Underwriting Agreement for the
IPO transaction, the Company agreed to an over-allotment and stock
stabilisation programme with the founder shareholders and the IPO
syndicate banks. The stabilisation programme was put into effect
and given the aftermarket performance of the shares immediately
post -- IPO, resulted in proceeds to the Company of US$22.2m
(GBP15.7m). As these proceeds were not part of the normal operation
of the business and related to the IPO transaction, they were
posted to the share premium account to set against IPO issuance
costs.
3 Significant accounting estimates and judgements
In the application of the Group's and Company's accounting
policies, the Directors are required to make judgements (other than
those involving estimations) that have a significant impact on the
amounts recognised and to make estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical judgements in applying the Group's accounting
policies
Revenue recognition
Management exercises judgement in determining the separate
performance obligations present in contracts with customers. In FY
2022, our scope of supply has extended from hard IP into soft IP
and custom silicon, where performance obligations and revenue
recognition treatment are different. As described in note 2, for
hard IP of the type provided by Alphawave prior to the acquisitions
of Precise-ITC and OpenFive, the Group considers the multiple
deliveries of IP views of a single IP product to be part of a
single performance obligation, as each IP view is highly dependent
on or interrelated with one or more of the other IP views, as each
successive IP view is based on the prior views of that IP. As such,
customers are unable to benefit from IP views on their own or
together with other readily available resources. For soft IP and IP
products acquired through the acquisitions of Precise-ITC and the
OpenFive business, the Group considers the initial IP delivery to
be a separate performance obligation, with subsequent IP deliveries
and customisation NRE forming a single further performance
obligation.
Custom silicon developments are typically complex and highly
customised with detailed engineering schedules and deliverables. A
custom silicon project may include internal engineering services,
Group IP, IP support services, third -- party IP, tooling costs and
prototypes. While these elements are capable of being distinct,
they are not distinct in the context of the contract. Each delivery
is highly dependent on or interrelated with one or more of the
other goods or services in the contract and the nature of the
obligation is to deliver a combined output in the form of a
completed design or prototype. In management's judgement, supply of
silicon following release to production is considered a separate
performance obligation which arises on receipt of a silicon
purchase order from the customer. Customer contracts do not contain
purchase volume commitments and therefore the supply of custom
silicon products is not only capable of being distinct, but is
distinct in the context of the contractual arrangements.
As described in note 2, hard IP products are delivered in
various stages, referred to as IP views. In FY 2021, management
exercised its judgement as to what percentage of the contract price
allocated to the IP product should be recognised as revenue at each
IP view delivery. For FY 2022, in respect of hard IP products of
the type provided by Alphawave prior to the acquisitions of
Precise-ITC and OpenFive, management now recognises revenue based
purely on percentage of completion. This approach more accurately
reflects the work done and requires management to exercise its
judgement in estimating the total number of hours required for each
project both at contract inception and periodically throughout the
life of the project.
Delivery of Preliminary IP views may occur very shortly after a
licence agreement is signed by a customer and hence significant
research and development or engineering hours may not have been
expended from contract signing up to that point. There are hours
incurred prior to the signing of contracts that relate to the
fulfilment of the performance obligations that are subsequently
agreed to in such contracts. As the maturity of our hard IP
improves, the number of hours expended prior to contract signature
is expected to reduce. Judgement is made with respect to the
pre-contract hours that are excluded or included in the calculation
of the revenue to be recognised such that any included hours
directly relate to the fulfilment of any contractual performance
obligations. Such pre-contract hours are taken into account in our
calculation of percentage of completion.
Systems have been implemented to more accurately measure the
hours expended prior to contract signature and, from FY 2023
onwards, management will no longer be required to exercise
judgement in respect of these pre -- contract hours.
At Final IP view delivery (the last IP view delivered to the
customer ahead of test chip manufacture), an amount of revenue was
previously held back for any post-delivery work that may have been
required to ensure the customer 'taped out' silicon met the
specifications detailed in the contract. Any post-Final IP view
delivery work related to silicon 'Bring up' and 'Integration' is
covered by the support contract and is a separate performance
obligation. The percentage held back was formerly fixed based on
the type and complexity of the IP provided. However, based on a
track record of completed projects, accumulated data has
established that significant hours are not required post-Final IP
view delivery. Therefore, we use management judgement to assess
each project on a case-by-case basis to assess whether further
engineering hours are likely to be required post-delivery of Final
IP views. The amount of revenue held back on such contracts is
typically a small proportion of the overall contract
consideration.
Both the estimate of total contract hours at contract inception
and thereafter the hold back of revenue at Final IP view delivery
require significant judgement from management. Such judgement is
based on deep knowledge and understanding of the development effort
required in delivering IP products to customers and the potential
for any further work required to ensure successful silicon
production by customers. This judgement may not be representative
of the work to be completed in all cases. As the Group completes
more IP deliveries to customers, it will continue to establish a
broader data set on which to base its judgements.
In respect of soft IP products originating from our acquisition
of Precise-ITC and IP products acquired through our acquisition of
the OpenFive business, as described in note 2, a proportion of
revenue is recognised at a point in time when the initial delivery
of IP is made to the customer, with the remaining revenues
recognised at points in time when successive deliveries of
customised IP are made. The proportion of revenue recognised is
based on management's judgement of the allocation of the contract
price attributable to each delivery. A distinction is made between
whether the IP requires significant or non-significant
customisation. For Precise-ITC IP requiring non-significant
customisation, 80% of the transaction price after deduction of the
value of any separate performance obligation in respect of support,
is attributed to the initial IP delivery.
The remaining 20% is attributed to customisation work and split
equally between two further IP deliveries, being updated and final
IP views. For IP requiring significant customisation, 30% is
attributed to the initial IP delivery. The remaining 70% is
attributed to customisation, which is split between three further
IP deliveries, with the percentage of revenue recognised reflecting
the functional coverage offered at each IP delivery. For IP
products acquired through our acquisition of the OpenFive business,
the initial IP delivery is typically based on a separate contract
with the value based on a list price of the IP, with any
customisation or integration work covered in a separate
agreement.
Management judgement is required in determining the percentage
recognition at the initial and subsequent IP deliveries and this
may not be representative of the work to be completed in all
cases.
If a contract contains multiple IP products, the deliverables
may be considered part of a single performance obligation, as
customers are unable to benefit from the IP products on their own
or together with other readily available resources, due to the
bespoke nature of the configuration that the Group performs on the
IP products as part of the licence arrangements.
In respect of custom silicon, as detailed above, the development
work represents a single performance obligation. Management
exercises its judgement in estimating the total costs required for
each project, which includes not only the internal engineering
costs (based on estimated hours and blended costs per hour), but
third-party costs required to be incurred.
Revenue under the subscription licence agreement with WiseWave
is recognised at the point in time at which control of the goods is
transferred to WiseWave. The Group considers control to have
transferred to WiseWave when each IP product and updates to those
IP products are uploaded to the library that they have access to
under the agreement. At the point of upload of IP products and
updates to IP products to the library, WiseWave has the ability to
direct the use of, and obtain substantially all of the remaining
benefits from, those IP products and updates to IP products, by
utilising the products in their semiconductor designs from which
they can then generate cash inflows.
As outlined in our IPO Prospectus, we assigned the VeriSilicon
reseller arrangement to WiseWave in order to consolidate the
Group's activities in China under a single entity and this was
implemented in Q4 2021. WiseWave are entitled to retain payments
from that contract totalling US$13.6m reflecting work that they
will be expected to perform in future periods to fulfil that
contract. In FY 2021, as WiseWave were building their technical
capabilities and were not yet able to fully perform this work, this
sum was accounted for as a reduction in the value (i.e. a discount)
of the subscription licence agreement with WiseWave, subject to
future adjustment as and when WiseWave began performance. In FY
2022, WiseWave have continued to build out their technical
capabilities and have begun to provide support to Alphawave. As
WiseWave are now performing the work to fulfil the contract, the
discount is being recognised in proportion to the amounts WiseWave
are entitled to retain and the number of IPs delivered. In FY 2022,
the Group recognised US$3.4m of the US$13.6m discount as
revenue.
As outlined in our IPO Prospectus, these arrangements were
contemplated at the time of entering into the VeriSilicon reseller
contract and establishing WiseWave and have been taken into account
in the disclosed aggregate booking of US$147.8m for these
transactions. As a result of the assignment of the VeriSilicon
reseller arrangement, there is no significant change anticipated to
the overall net financial impact on the Group.
Research and development costs
Judgement is exercised in determining whether costs incurred
should be capitalised in line with IAS 38. The judgement includes
whether it is technically feasible to complete the relevant assets
on which costs are incurred so that they will be available for use
or sale. Judgement is also required to determine the useful
economic life of any capitalised development costs.
In respect of standard product development, Alphawave operates a
New Product Development (NPD) process where engineering decisions
are reviewed in respect of:
-- commercial prospects, for example target market size, target customers, revenue potential;
-- expected costs of planned engineering activity, resources
required and opportunity cost of utilising those resources; and
-- planned engineering activity analysed by defined project phases.
Alphawave's NPD process identifies 16 project phases and is
applied to new products, both in silicon and IP form.
The stage at which technical feasibility of completing the asset
can be demonstrated can vary substantially depending on the nature
of the technology and is assessed on a project-by-project basis,
with reference to the project phases defined in the NPD process and
is hence subject to judgement.
The assessment of whether development expenditure should be
capitalised requires assumptions relating to our ability to ensure
we have adequate resources available to complete the final product
and our assessment of the scale and maturity of the addressable
market and forecast customer demand.
Joint ventures
As at year end, the Group owned 42.5% of WiseWave, a newly
formed company established in China in Q4 2021 to develop and sell
silicon products incorporating silicon IP licensed from the Group.
We equity account for the investment as a joint venture, resulting
in a US$18.5m loss for FY 2022.
Judgement is used in determining the extent of the control the
Group has over WiseWave. The Group is satisfied WiseWave should be
treated as a joint venture under IFRS 11 as opposed to being
treated as an associate. For all joint arrangements structured in
separate vehicles the Group must assess the substance of the joint
arrangement in determining whether it is classified as a joint
venture or joint operation.
This assessment requires the Group to consider whether it has
rights to the joint arrangement's net assets (in which case it is
classified as a joint venture), or rights to and obligations for
specific assets, liabilities, expenses and revenues (in which case
it is classified as a joint operation). Factors the Group must
consider include:
-- structure;
-- legal form;
-- contractual agreement; and
-- other facts and circumstances.
Upon consideration of these factors, the Group has determined
that all of its joint arrangements structured through separate
vehicles give it rights to the net assets and are therefore
classified as joint ventures.
Joint venture revenue
The Group's proportion of revenue recognised from sales to
WiseWave under the subscription licence agreement has been
eliminated in the 'Loss from joint venture' line in the
consolidated statement of comprehensive income to the extent that
the revenue is not realised based on WiseWave's utility and in line
with IAS 28. The Group exercised judgement in eliminating the
revenue in this way. Had the Group eliminated our share of the
gains from sales to the joint venture against the revenue line, our
revenues would have reduced by US$4.8m to US$180.6m.
Where an investor enters into a downstream transaction with an
equity-accounted investee for which its share of the gain arising
from the transaction exceeds its interest in the investee, an
accounting policy choice is made in respect of how that excess is
treated in the investor's accounts. In 2022, our cumulative share
of WiseWave's loss and the elimination of gains from sales made to
WiseWave exceeded the value of our investment in them.
We have exercised our judgement in choosing not to eliminate the
full gains from sales to WiseWave and not to recognise a deferred
income balance for the excess of the elimination over the carrying
value of the investment. In our opinion, this more appropriately
reflects the current nature of the relationship with WiseWave and
is consistent with our intention to exit the joint venture in the
medium term.
Had we elected to eliminate the share of the gain in full, we
would have recognised a deferred income balance of US$2.3m in the
consolidated statement of financial position.
Impairment of financial assets
As described in note 2, the Group recognises a loss allowance
for expected credit losses (ECL) on accounts receivable and applies
the simplified approach, recognising the lifetime ECL for these
assets. The Group uses a provision matrix based on the Group's
historical credit loss experience to inform the level of ECL
allowance and exercises significant judgement in assessing the
factors that are specific to the customers and the general current
and forecasted economic conditions that are used to adjust the
ECL.
As at 31 December 2022, the Group's ECL allowance for accounts
receivable was US$2.2m (31 December 2021: not material). This level
of ECL allowance reflects the Group's historical credit loss
experience and its assessment of each of the customers making up
its accounts receivable balance at each reporting date and the
prevailing and predicted macroeconomic conditions that may impact
on those customers' ability to pay their outstanding invoices.
As at 31 December 2022, the Group had one customer with accounts
receivable that were significantly in excess of 30 days past due,
totalling US$4.2m including the associated accrued revenue balance,
against which an ECL allowance of US$0.5m was recognised.
Management consider this component of the ECL allowance to be a
major source of estimation uncertainty at the end of the reporting
period, that has a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year.
In concluding that the allowance recognised of US0.5m was
appropriate, the Group has considered carefully the recoverability
of this balance, taking into account specific details of the
customer's current and near-term trading prospects, their access to
additional funding and past trading activity with the Group. Had
the Group provided the full amounts of these accounts receivable
and accrued revenue in FY 2022, accounts receivable and accrued
revenue would have been US$3.7m lower and operating profit would
have been US$3.7m lower.
Assets acquired and liabilities assumed in business
combinations
In accounting for business combinations, judgement is required
in determining whether an intangible asset is identifiable and
should be recorded separately from goodwill. Additionally,
estimating the acquisition-date fair values of the identifiable
assets acquired and liabilities assumed involves considerable
judgement and the valuation techniques used incorporate several key
assumptions, including: forecasts of revenues attributable solely
to the existing assets; forecasts of revenue/customer attrition;
the application of an appropriate operating margin to forecast
sales; the application of an appropriate tax charge to estimate
post-tax cash flows; the application of post-tax contributory asset
charges to reflect the return required on other tangible and
intangible assets that contribute to the generation of the forecast
cash flows; and the application of an appropriate discount rate to
state future cash flows at their present value. The necessary
measurements are based on information available at the acquisition
date and are based on expectations as well as assumptions that have
been deemed reasonable by management. These judgements, estimates
and assumptions could
materially affect our financial statements if other judgements,
estimates and assumptions were made.
Cash generating units
A cash generating unit (CGU) is the smallest identifiable group
of assets that generates cash inflows that are largely independent
of the cash inflows from other assets or groups of assets.
The Group's tangible and identifiable intangible assets
principally comprise acquired IP and technology assets that are
used interchangeably by the Group's research and development team
in the delivery of IP, custom silicon and silicon products to end
customers. For example, we use the IP and technology assets
acquired with the OpenFive business in the development not only of
custom silicon designs but also of IP products and standard
products. Given this integrated approach to IP development, the
Group does not hold any individual assets or groups of assets that
generate cash inflows that are largely independent of the cash
inflows from other assets or groups of assets. In management's
judgement, therefore, the Group consists of a single CGU.
Accordingly, the Group's tangible and identifiable intangible
assets are tested for impairment at Group level based on estimates
of the Group's future cash flows.
Key sources of estimation uncertainty in the consolidated
financial statements
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the consolidated statement of
financial position date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed
below.
Revenue recognition
Revenue recognition for hard IP products licensed under our
standard pay-per-use contracts and custom silicon development work
is based upon cost to completion using the input method, as this
best reflects the transfer of control of the licensed IP products
or the custom silicon design to the customer, with percentage of
completion based on management judgements and estimates
approximating the work required to meet contract deliverables.
These judgements and estimates vary depending on the contract type,
the maturity of the IP being licensed, the complexity of the
silicon being developed, customer requirements and involvement,
customer specifications, whether the contract deliverables are in
their early or later stages and whether the IP has already been
silicon-proven. If different estimates of the work required to meet
contract deliverables had been made, our revenue may have been
different from that shown in the consolidated statement of
comprehensive income and the contract assets and contract
liabilities balances shown in the consolidated statement of
financial position may also have been different. Refer to note 5
for further information regarding the sensitivity of revenue
recognition to the estimation uncertainty of work required to meet
contract deliverables.
For the subscription licence agreement with WiseWave, the Group
uses point-in-time revenue recognition. The agreement includes
multiple performance obligations for delivery of distinct IPs and
periodic updates to those IPs. Revenue is recognised based on
delivery of each distinct IP as a proportion of management's
estimate of the total number of IPs to be delivered during the
five-year term of the agreement. If different assumptions were made
about the total number of IPs to be delivered during the contract
term and the amount of contract price allocated to each IP, the
revenue recorded against this contract in the consolidated
statement of comprehensive income and the contract assets and
contract liabilities balances shown in the consolidated statement
of financial position may be different from that shown.
Fair value of assets acquired in business combinations
In calculating the value of intangible assets, we have
considered the requirements of the standards and the highest and
best use of the assets. The calculations include estimation
uncertainty in respect of elements of the fair value estimates,
notably forecasting revenues and margins for intellectual property
(IP) and customer relationships.
For the IP recognised in respect of the OpenFive business
combination, SoC IP revenues have been forecast to grow at a
compound annual growth rate (CAGR) of 43.6% between 2022 and 2026
based on past performance. If total revenue growth of 29.0% per
annum (based on a 2022 to 2026 CAGR) had been used instead, the SoC
IP intangible value would be US$9.2m lower, consequently leading to
an increase in goodwill and a decrease in deferred tax
liability.
In respect of customer relationships recognised in the OpenFive
business combination, we forecast an improvement in EBIT margins
for NRE and product revenue based on operational changes between
2022 and 2025. If these expected margin improvements were not
achieved, then the value of the customer relationship recognised
would be approximately US$5.8m, which is US$19.9m lower than
recognised in the consolidated statement of financial position,
consequently leading to an increase in goodwill and a decrease in
deferred tax liability.
In determining the value of the IP in-progress recognised in
respect of the Banias business combination, we have considered the
revenue expected to be achieved from this asset once complete.
However, as this is a new optical DSP product offered by the Group
that is not yet complete, there is uncertainty in the revenue that
is expected to be achieved. Had we limited the expected sales and
margins to the total of the non-binding, multi-year purchasing
framework with a leading North American hyperscaler, which we
consider to be an unlikely scenario, the valuation of the IP
in-progress would be reduced to US$0.6m, consequently leading to an
increase in goodwill and a decrease in deferred tax liability. In
performing this sensitivity, we have reduced the discount rate to
reflect the reduced forecasting uncertainty of the scenario
compared to the base case.
4 Alternative performance measures (APMs)
The Group uses certain financial measures that are not defined
or recognised under IFRS. The Directors believe that these non --
GAAP measures supplement GAAP measures to help in providing a
further understanding of the results of the Group and are used as
key performance indicators within the business to aid in evaluating
its current business performance. The measures can also aid in
comparability with other companies who use similar metrics.
However, as the measures are not defined by IFRS, other companies
may calculate them differently or may use such measures for
different purposes to the Group.
Bookings
The Group monitors and discloses bookings and backlog as key
performance indicators of future revenues. Bookings are a non-IFRS
measure and represent legally binding and largely non-cancellable
commitments by customers to license our technology. Our bookings
comprise licence fees, non-recurring engineering, support, orders
for silicon products and, in some instances, our estimate of
potential future royalties.
Our royalties are estimated based on contractually committed
royalty prepayments or, in limited instances, on sensitised volume
estimates provided by customers. Our bookings for FY 2022,
including royalties, totalled US$228.1m (FY 2021: US$244.7m), and
excluding royalties, US$213.0m (FY 2021: US$220.8m).
Backlog represents bookings over the life of the Group that have
not yet been recognised as revenues and which we expect to be
recognised in future periods. Backlog as at the end of 2022 is
calculated based on our backlog as at the end of 2021, plus new
bookings, plus backlog acquired as part of the acquisitions of
OpenFive and Precise-ITC Inc., less revenues recognised during the
period.
Year ended Year ended
31 December 31 December
2022 2021
US$m US$m
---------------------------------------------------- ------------ ------------
Backlog (end of the prior year) 168.6 37.2
Add: New bookings excluding IP royalties 213.0 220.8
Add: Backlog acquired with OpenFive and Precise-ITC 168.3 -
Less: Revenues recognised in the period(1) (185.4) (89.4)
---------------------------------------------------- ------------ ------------
Backlog (end of the year) 364.5 168.6
---------------------------------------------------- ------------ ------------
1. 2021 is different from reported revenue due to foreign exchange differences.
Earnings before interest, taxation, depreciation and
amortisation (EBITDA)
EBITDA provides a supplemental measure of earnings that
facilitates review of operating performance on a period-to-period
basis by excluding items that are not indicative of the Group's
underlying operating performance and is a key profit measure used
by the Board to assess the underlying financial performance of the
Group. EBITDA is stated before the following items and for the
following reasons:
-- interest is excluded from the calculation of EBITDA because
the expense and income bears no relation to the Group's underlying
operational performance;
-- charges for the depreciation of property and equipment,
acquired intangibles and right-of-use assets are excluded from the
calculation of EBITDA, as removing these non-monetary items allows
management to better project the Group's long-term profitability;
and
-- tax is excluded from the calculation of EBITDA because the
expense bears no relation to the Group's underlying operational
performance.
Operating profit to EBITDA reconciliation
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
------------------------------------------------------- ------------ ------------
Operating profit 37,627 36,035
Add backs:
Depreciation of tangible fixed assets and right-of-use
assets 5,508 3,127
Amortisation 6,159 -
------------------------------------------------------- ------------ ------------
EBITDA 49,294 39,162
------------------------------------------------------- ------------ ------------
Two further measures are adjusted EBITDA and adjusted profit
after tax, defined in the tables below. These further allow for a
more accurate assessment of underlying business performance by
making exclusions of items which do not form part of the Group's
normal underlying operations.
EBITDA to adjusted EBITDA reconciliation
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
-------------------------------------------- ------------ ------------
EBITDA 49,294 39,162
Add backs:
Non-recurring Initial Public Offering costs - 9,961
M&A-related costs 16,973 533
Share-based payment 15,695 6,143
Exchange gain (36,838) (4,023)
Retention payments 1,703 -
-------------------------------------------- ------------ ------------
Adjusted EBITDA 46,827 51,776
-------------------------------------------- ------------ ------------
M&A-related costs include one-off legal and professional
costs incurred as a result of the Group's execution of agreements
for the formation and commercial arrangements relating to the
Group's joint venture, WiseWave, as well as professional fees and
one-time employee retention bonuses related to the acquisitions of
Precise-ITC, OpenFive and Banias. We believe that excluding the
effect of share-based payments from adjusted EBITDA assists
management and investors in making period -- to-period comparisons
in the Group's operating performance because the amount of such
expenses in any specific period may not directly correlate to the
underlying performance of our business operations.
Retention payments represent cash payments in lieu of
share-based remuneration committed as part of the acquisition of
Banias.
Additionally, these expenses can vary significantly between
periods as a result of the timing of grants of new share-based
awards, including grants in connection with acquisitions. The
exchange gain in 2022 has been removed from EBITDA as it relates to
an unrealised gain relating to cash held and therefore does not
form part of the Company's operating performance.
We exclude the impact of amortisation of acquired intangibles in
connection with business combinations from our adjusted profit
after tax, as we do not consider them to be representative of the
underlying operational performance of the business.
Profit for the year to adjusted profit after tax
reconciliation
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
-------------------------------------------- ------------ ------------
(Loss)/profit for the year (1,086) 9,431
Add backs:
Non-recurring Initial Public Offering costs - 9,961
M&A-related costs 16,973 533
Share-based payment 15,695 6,143
Exchange gain (36,838) (4,023)
Retention payments 1,703 -
Amortisation of acquired intangibles 5,519 -
Tax effect of above adjustments 4,708 -
-------------------------------------------- ------------ ------------
Adjusted profit for the year 6,674 22,045
-------------------------------------------- ------------ ------------
Adjusted profit per ordinary share attributable to the
shareholders (expressed in cents per ordinary share)
Year ended Year ended
31 December 31 December
2022 2021
------------------------------------------------ ------------ ------------
Adjusted basic earnings per share (US$ cents) 0.98 3.52
Adjusted diluted earnings per share (US$ cents) 0.98 3.14
------------------------------------------------ ------------ ------------
Adjusted and diluted basic earnings per share have been
calculated by taking the adjusted profit for the year and dividing
it by the basic or diluted, as appropriate, weighted average number
of common shares outstanding as calculated in note 13. Adjusted
basic earnings per share and adjusted diluted earnings per share
are the same because the share options and RSUs are anti-dilutive.
Therefore, they have been excluded from the calculation of diluted
weighted average number of ordinary shares.
5 Revenue
Disaggregation of revenue
The Group has disaggregated revenue into various categories in
the following tables which is intended to depict how the nature,
amount, timing and uncertainty of revenue and cash flows are
affected by economic factors.
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
---------------------- ------------ ------------
Revenue by type:
IP and NRE 76,123 51,224
IP and NRE - Reseller 3,270 8,861
IP and NRE- JV 58,207 29,846
Silicon and royalties 47,806 -
---------------------- ------------ ------------
185,406 89,931
---------------------- ------------ ------------
'IP and NRE' represents revenues from IP products licensing,
along with related support and NRE services, in addition to custom
silicon NRE (which can include internal engineering services, our
IP and related support, third party IP, tooling costs and
prototypes). 'IP and NRE - Reseller' represents revenue from IP
products licensing, related support and NRE services provided
through VeriSilicon, prior to our arrangements with VeriSilicon
being moved under WiseWave in late 2021. 'IP and NRE - JV'
represents revenue from our joint venture, WiseWave, and includes
revenues recognised under the 5-year subscription licence and
revenues recognised under the VeriSilicon reseller arrangements
which were moved under WiseWave in late 2021. 'Silicon and
royalties' represent revenues recognised once our customers are in
production and in the case of custom silicon are based on shipments
of physical silicon products and, for standalone IP licensing,
royalties payable on usage of our IP within silicon products.
Whilst this part of the note shows revenue by type, due to
materiality, we have separately itemised the revenue from our
reseller and joint venture, both based in China. The revenue from
our joint venture in China, WiseWave, predominantly relates to a
five-year subscription licence agreement where we have recognised
US$31.1m (2021: US$27.7m) based on our deliveries of IP to
WiseWave. The remaining revenue from WiseWave relates to a separate
agreement signed in Q4 2021 to deliver chiplet IP and revenue
recognised through WiseWave acting as master reseller of IP to
VeriSilicon.
All revenue from VeriSilicon and related balances are in respect
of transactions signed with VeriSilicon as reseller prior to the
VeriSilicon reseller agreement moving under WiseWave as master
reseller effective from November 2021. All revenue and associated
balances in respect of transactions signed with VeriSilicon since
that date are now recognised through the WiseWave joint venture
line.
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
------------------- ------------ ------------
Revenue by region:
North America 51,361 37,642
China 104,755 43,063
APAC (ex-China) 16,980 9,226
EMEA 12,310 -
------------------- ------------ ------------
185,406 89,931
------------------- ------------ ------------
Revenues from customers which comprise greater than 10% of the
Group's total revenues are as follows:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
-------------------- ------------ ------------
Customer - WiseWave 58,207 29,846
-------------------- ------------ ------------
US$90.7m (49% of total revenues) (2021: US$53.4m, 59%) represent
revenues recognised over time. These revenues require management
judgements and estimates of project hours or costs that are used in
percentage of completion calculations. These revenues relate to
work done during the design phase of a customer project and include
(with the exception of a limited amount of revenue relating to our
Soft IP) IP product licensing fees, together with related support
and NRE, as well as custom silicon NRE fees. We have applied a
sensitivity to revenues recognised over time in 2022 which are
subject to estimates. If our estimates of total hours or total
costs had been 10% higher, these revenues would be US$83.6m. If our
estimates of total hours or total costs had been 10% lower, these
revenues would be US$96.3m.
US$94.7m (51% of total revenues) (2021: US$36.5m, 41%) are
recognised at a point in time. These revenues are based on silicon
shipments once our customers are in production. In the case of
custom silicon, this represents revenues from shipments of physical
silicon products, and for standalone IP licensing, royalties
payable on usage of our IP within silicon products. Revenues from
our 5 year subscription licence agreement with WiseWave are also
recognised at a point in time, based on the number of IP uploads
during the period. Revenues from the 3 year reseller agreement with
VeriSilicon, which was moved under WiseWave in late 2021, are
recognised at a point in time to the extent that they represent
exclusivity fees paid during the period not credited against IP
licences. In addition, a limited amount of revenue from our Soft IP
products is recognised at a point in time.
WiseWave - subscription licence agreement
Revenue recognition for the WiseWave subscription licence
agreement is determined with reference to the estimated total
number of IP uploads to be delivered to WiseWave during the term of
the agreement and the number of uploads made to WiseWave each
period. The table below illustrates the sensitivity of revenue
recognition and the associated balance sheet balances to a change
in the estimated total number of IP products to be delivered and
assumes a 10% increase and a 10% decrease in the total number of
uploads, but the same number of uploads made during 2022.
As reported +10% -10%
Year ended 31 December 2022 US$'000 US$'000 US$'000
----------------------------- ----------- -------- --------
Revenue stream
WiseWave SLA revenue 31,091 27,982 34,200
WiseWave SLA accrued revenue 16,794 15,115 18,473
----------------------------- ----------- -------- --------
As reported +10% -10%
Year ended 31 December 2021 US$'000 US$'000 US$'000
----------------------------- ----------- -------- --------
Revenue stream
WiseWave SLA revenue 27,700 25,229 30,714
WiseWave SLA accrued revenue 3,700 1,229 6,714
----------------------------- ----------- -------- --------
Accrued and deferred revenue movements
Below is a reconciliation of the movement in accrued revenue
during the period:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
--------------------------------------- ------------ ------------
At 1 January 31,719 10,328
On acquisition of subsidiaries 2,714 -
Revenue accrued in the period 56,231 30,482
Accrued revenue invoiced in the period (31,983) (8,959)
Foreign exchange difference (147) (132)
--------------------------------------- ------------ ------------
At 31 December 58,534 31,719
--------------------------------------- ------------ ------------
Below is a reconciliation of the movement in deferred revenue
during the period:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
--------------------------------- ------------ ------------
At 1 January 2022 12,661 7,381
On acquisition of subsidiaries 41,361 -
Revenue recognised in the period (38,959) (6,450)
Revenue deferred in the period 76,205 11,554
Cumulative catch-up adjustments - 8
Foreign exchange difference 465 168
--------------------------------- ------------ ------------
At 31 December 91,733 12,661
--------------------------------- ------------ ------------
The cumulative catch-up adjustment in 2021 represents a change
in estimate of the total number of hours expected to complete a
project.
The deferred revenue balance is all expected to be satisfied
within 12 months of the consolidated statement of financial
position date.
The flexible spending account has decreased to US$5.2m as at 31
December 2022 from US$6.8m as at 31 December 2021. This represents
a type of deferred income, and these are contracts with customers
who have committed to regular periodic payments to us over the term
of the contract. These payments are not in respect of specific
licences or other deliverables, but they can be used as credit
against future deliverables.
The balances related to costs to obtain contracts from customers
are as follows:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
--------------------------- ------------ ------------
Capitalised contract costs 874 609
--------------------------- ------------ ------------
The costs to obtain contracts from customers include
commissions. Amortisation of US$2.9m (2021: US$3.0m) and impairment
of US$nil (2021: US$nil) was charged to the consolidated statement
of comprehensive income in the period.
6 Research and development/engineering
The Group incurred research and development costs that have been
expensed in the consolidated statement of comprehensive income. The
amounts are expensed through research and development/engineering
and are as follows:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
------------------------------------- ------------ ------------
Research and development/engineering 69,358 29,444
------------------------------------- ------------ ------------
7 Employee benefit costs
The aggregate employee benefit expenses were as follows:
Group Group Company Company
Year ended Year ended Year ended Period
31 December 31 December 31 December ended
2022 2021 2022 31 December
US$'000 US$'000 US$'000 2021
US$'000
----------------------------------- ------------ ------------ ------------ ------------
Wages, salaries and benefits 45,301 19,216 1,444 328
Defined contribution pension costs 1,300 253 27 10
Social security costs 3,959 1,447 411 41
Share-based payment expense 15,695 6,143 235 342
Investment tax credit (5,198) (3,039) - -
Government grants - (56) - -
----------------------------------- ------------ ------------ ------------ ------------
Total 61,057 23,964 2,117 721
----------------------------------- ------------ ------------ ------------ ------------
The average number of employees during the period, analysed by
category, was as follows:
Group Group Company Company
2022 2021 2022 2021
------------------------------------- ----- ----- ------- -------
Research and development/engineering 321 110 - -
General and administration 29 10 7 3
Sales and marketing 11 4 - -
------------------------------------- ----- ----- ------- -------
Total 361 124 7 3
------------------------------------- ----- ----- ------- -------
The number of employees at the period end analysed by category,
was as follows:
Group Group Company Company
2022 2021 2022 2021
------------------------------------- ----- ----- ------- -------
Research and development/engineering 621 134 - -
General and administration 57 15 9 5
Sales and marketing 17 5 - -
------------------------------------- ----- ----- ------- -------
Total 695 154 9 5
------------------------------------- ----- ----- ------- -------
FY 2022 and FY 2021 headcount numbers throughout the report
exclude interns. In FY 2021 there were five interns who were
previously reported as part of the R&D headcount.
8 Directors' and key management personnel remuneration
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group, including the Directors of the Company,
the co-founders and the Chief Financial Officer of the Company.
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
------------------------------------------ ------------ ------------
Remuneration (including benefits in kind) 5,962 2,235
Defined contribution pension costs 59 4
Share-based payment expense - 252
------------------------------------------ ------------ ------------
6,021 2,491
------------------------------------------ ------------ ------------
One Director exercised options during the previous period.
Details are as follows:
Year ended Year ended
31 December 31 December
2022 2021
-------------------------------------------------------- ------------- ------------
Number of options, in thousands, exercised by Directors
and key management - 4,000
Gains made on exercise of options by Directors and
key management US$'000 - 5,636
-------------------------------------------------------- ------------- ------------
Details of the highest paid Director's remuneration is as
follows:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
------------------------------------------------------- ------------ ------------
Remuneration (including benefits in kind) 762 740
Defined contribution pension costs 45 4
------------------------------------------------------- ------------ ------------
807 744
------------------------------------------------------- ------------ ------------
Number of options, in thousands, exercised by Director - 4,000
------------------------------------------------------- ------------ ------------
The number of options at 31 December 2021 has been adjusted for
the 20 for 1 share split that happened immediately prior to the
Initial Public Offering in May 2021.
Shortly following the Company's incorporation, 50,000 preference
shares of nominal value of GBP1 each were issued to John Lofton
Holt, a Company Director. The preference shares were issued as
fully paid up in consideration for an undertaking from Mr Holt to
pay to the Company a sum of GBP50,000. The preference shares were
redeemed by the Company on 6 December 2021 and the undertaking to
pay was thereby cancelled.
A loan of CDN$1,280,000 was made to Daniel Aharoni, a Director
of the Company for the exercise of share options in Alphawave IP
Inc prior to the IPO date. The loan was repaid on the sale of
shares in the Company at the IPO and following the exchange of
Alphawave IP Inc shares into Company shares prior to the IPO date.
The loan was interest free.
9 Auditor's remuneration
The Group paid the following amount to its auditor in respect of
the audit of the Group's financial statements and for other
non-audit services provided to the Group.
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Audit of the financial statements 1,713 725
Audit-related assurance services 124 155
Other assurance services - 1,135
---------------------------------- ------------ ------------
1,837 2,015
---------------------------------- ------------ ------------
In the prior period, other assurance services relate to
financial services provided for our admission to list on the London
Stock Exchange.
10 Finance income and expense
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
--------------------------------------------------------- ------------ ------------
Finance income
Interest income from customer - 202
Interest income from contracts with customers containing
significant financing components 235 -
Bank interest 1,449 110
--------------------------------------------------------- ------------ ------------
1,684 312
--------------------------------------------------------- ------------ ------------
Finance expense
Bank charges - (26)
Lease interest (391) (294)
Term loan interest (3,134) -
NPV interest (27) -
IIA interest (36) -
--------------------------------------------------------- ------------ ------------
(3,588) (320)
--------------------------------------------------------- ------------ ------------
Net finance expense (1,904) (8)
--------------------------------------------------------- ------------ ------------
11 Non-recurring Initial Public Offering costs
In accordance with the Group's policy for non-recurring items,
the following charges were included in this category for the prior
period:
One-off costs relating to Project Aurora, the project name for
the Group's Initial Public Offering on the London Stock Exchange,
that were not able to be offset against share premium under IAS 32
totalled US$nil (2021: US$10.0m). Over half of these total fees
related to LSE admission fees and legal costs associated with the
Initial Public Offering. Per IAS 32, costs that relate to the stock
market listing or are otherwise not incremental and not directly
attributable to issuing new shares should be recorded in the
consolidated statement of comprehensive income.
12 Tax expense
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
----------------------------------------------- ------------ ------------
Current taxation
UK corporation tax 5,792 257
Adjustments to prior periods (516) 125
Overseas tax 13,330 13,349
----------------------------------------------- ------------ ------------
Total current tax 18,606 13,731
----------------------------------------------- ------------ ------------
Deferred tax
Origination and reversal of timing differences (278) (74)
----------------------------------------------- ------------ ------------
Total deferred tax (278) (74)
----------------------------------------------- ------------ ------------
Taxation on profit 18,328 13,657
----------------------------------------------- ------------ ------------
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax applied to
profits for the year are as follows:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
------------------------------------------------------ ------------ ------------
Profit before tax 17,242 23,088
------------------------------------------------------ ------------ ------------
Profit before tax at the UK corporation tax rate
of 19% (2021: 19%) 3,275 4,387
Effects of:
Share-based compensation 3,141 1,036
Expenses not deductible for tax purposes 1,964 1,902
Research and development tax credits and incentives - 72
(Over)/under accrual of prior year provision (516) 125
Different tax rates applied in overseas jurisdictions 3,469 3,677
Share of joint venture's loss 3,511 2,458
Change in benefit of tax assets not recognised 3,281 -
Other tax items 203 -
------------------------------------------------------ ------------ ------------
Total tax charge for year 18,328 13,657
------------------------------------------------------ ------------ ------------
Changes in tax rates and factors affecting the future tax
charge
An increase in the future main UK corporation tax rate to 25%
from 1 April 2023, from the previously enacted 19%, was announced
at the Budget on 3 March 2021, and substantively enacted on 24 May
2021. The deferred taxation balances have been measured using the
rates expected to apply in the reporting periods when the timing
differences reverse.
There have been no legislative changes announced in 2022 in
relation to Canadian or US tax rates which will affect the
Group.
13 Earnings per share
Basic earnings per share is calculated by dividing net income
from operations by the weighted average number of common shares
outstanding during the period.
Diluted earnings per share is calculated by adjusting the
weighted average number of common shares outstanding during the
period to assume conversion of all potential dilutive share options
and restricted share units to common shares.
Year ended Year ended
31 December 31 December
(US$ thousands except number of shares) 2022 2021
----------------------------------------------------- ------------ ------------
Numerator:
(Loss)/profit for the year (1,086) 9,431
----------------------------------------------------- ------------ ------------
Denominator:
In issue at 1 January 664,965,934 27,927,252
----------------------------------------------------- ------------ ------------
Effect of 20 for 1 share exchange - 558,545,040
Effect of pre-IPO option conversion - 3,986,807
Effect of primary share issue at IPO - 54,776,719
Effect of exercise of options at IPO - 8,138,237
Effect of share issue post IPO 14,883,503 137,957
----------------------------------------------------- ------------ ------------
Weighted average number of common shares outstanding
for basic earnings per share 679,849,437 625,584,760
Adjustment for dilutive share options and RSUs - 76,905,071
----------------------------------------------------- ------------ ------------
Weighted average number of common shares outstanding
for diluted earnings per share 679,849,437 702,489,831
----------------------------------------------------- ------------ ------------
Basic (loss)/earnings per share (US$ cents) (0.16) 1.51
----------------------------------------------------- ------------ ------------
Diluted (loss)/earnings per share (US$ cents) (0.16) 1.34
----------------------------------------------------- ------------ ------------
Adjusted basic loss per share in 2022 and adjusted diluted loss
per share in 2022 are the same because the share options and RSUs
are anti-dilutive. Therefore, they have been excluded from the
calculation of diluted weighted average number of ordinary
shares.
14 Property and equipment
Computer Furniture Leasehold Lab
equipment and fixtures improvements equipment Total
Group US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------- ---------- ------------- ------------- ---------- --------
Cost
Balance at 1 January 2021 508 57 140 - 705
Additions 1,595 5 268 - 1,868
Foreign exchange (15) - (4) - (19)
------------------------------- ---------- ------------- ------------- ---------- --------
Balance at 31 December 2021 2,088 62 404 - 2,554
------------------------------- ---------- ------------- ------------- ---------- --------
Additions 10,128 286 1,261 93 11,768
On acquisition of subsidiaries 913 111 264 1,279 2,567
Foreign exchange (5) (1) (6) - (12)
------------------------------- ---------- ------------- ------------- ---------- --------
Balance at 31 December 2022 13,124 458 1,923 1,372 16,877
------------------------------- ---------- ------------- ------------- ---------- --------
Accumulated depreciation
Balance at 1 January 2021 232 24 37 - 293
Depreciation charge for the
year 540 7 95 - 642
Foreign exchange (6) - (1) - (7)
------------------------------- ---------- ------------- ------------- ---------- --------
Balance at 31 December 2021 766 31 131 - 928
------------------------------- ---------- ------------- ------------- ---------- --------
Depreciation charge for the
year 1,886 58 456 72 2,472
Disposals - - - - -
Foreign exchange 16 9 31 - 56
------------------------------- ---------- ------------- ------------- ---------- --------
Balance at 31 December 2022 2,668 98 618 72 3,456
------------------------------- ---------- ------------- ------------- ---------- --------
Net book value
At 31 December 2020 276 33 103 - 412
------------------------------- ---------- ------------- ------------- ---------- --------
At 31 December 2021 1,322 31 273 - 1,626
------------------------------- ---------- ------------- ------------- ---------- --------
At 31 December 2022 10,456 360 1,305 1,300 13,421
------------------------------- ---------- ------------- ------------- ---------- --------
Company
The Company has no property, plant and equipment.
15 Intangible assets
Developed Developed Customer RISC-V Other
IP technology relationships licences intangibles Total
Group US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------- --------- ----------- -------------- --------- ------------ --------
Cost
Balance at 1 January
2021 140 - - - - 140
Additions 1,038 - - - - 1,038
Foreign exchange (11) - - - - (11)
------------------------- --------- ----------- -------------- --------- ------------ --------
Balance at 31 December
2021 1,167 - - - - 1,167
------------------------- --------- ----------- -------------- --------- ------------ --------
On acquisition of
subsidiaries 38,887 83,900 25,700 5,200 386 154,073
Additions 4,343 4,255 - - 3,747 12,345
Foreign exchange (49) - - - - (49)
------------------------- --------- ----------- -------------- --------- ------------ --------
Balance at 31 December
2022 44,348 88,155 25,700 5,200 4,133 167,536
------------------------- --------- ----------- -------------- --------- ------------ --------
Accumulated amortisation
Balance at 1 January - - - - - -
2021
Amortisation charge - - - - - -
for the year
Foreign exchange - - - - - -
------------------------- --------- ----------- -------------- --------- ------------ --------
Balance at 31 December - - - - - -
2021
------------------------- --------- ----------- -------------- --------- ------------ --------
Amortisation charge
for the year 4,730 - 714 347 368 6,159
Foreign exchange (29) - - - - (29)
------------------------- --------- ----------- -------------- --------- ------------ --------
Balance at 31 December
2022 4,701 - 714 347 368 6,130
------------------------- --------- ----------- -------------- --------- ------------ --------
Net book value
At 31 December 2020 140 - - - - 140
------------------------- --------- ----------- -------------- --------- ------------ --------
At 31 December 2021 1,167 - - - - 1,167
------------------------- --------- ----------- -------------- --------- ------------ --------
At 31 December 2022 39,647 88,155 24,986 4,853 3,765 161,406
------------------------- --------- ----------- -------------- --------- ------------ --------
Amortisation is recognised in the R&D/engineering line of
the consolidated statement of comprehensive income.
Developed technology consists of intangible assets that are
still under development and are not yet available for use.
Company
The Company has no intangible assets.
16 Goodwill
Total
Group US$'000
----------------------------------- --------
Cost
Balance at 1 January 2021 and 2022 -
----------------------------------- --------
On acquisition of subsidiaries(1) 331,886
Foreign exchange -
----------------------------------- --------
Balance at 31 December 2022 331,886
----------------------------------- --------
Impairment
Balance at 1 January 2021 and 2022 -
Impairment charge for the year -
----------------------------------- --------
Balance at 31 December 2022 -
----------------------------------- --------
Net book value
At 31 December 2020 -
----------------------------------- --------
At 31 December 2021 -
----------------------------------- --------
At 31 December 2022 331,886
----------------------------------- --------
1. OpenFive and Banias goodwill balances are provisional. See note 33 Business combinations.
The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment. The recoverable amount is
determined based on value-in-use calculations. The use of this
method requires the estimation of future cash flows and the
determination of a discount rate in order to calculate the present
value of the cash flows.
Movements in goodwill during the years ending 31 December 2022
and 2021 were as follows:
2022 2021
US$'000 US$'000
---------------------------------------------- -------- --------
At the beginning of the year - -
---------------------------------------------- -------- --------
Businesses acquired during the year (note 33) 331,886 -
---------------------------------------------- -------- --------
At the end of the year 331,886 -
---------------------------------------------- -------- --------
Management considers that the Group's operations constitute a
single operating segment. Furthermore, management considers that
the Group's operations are interdependent such that there is no
asset or group of assets that generates cash inflows that are
largely independent of the cash inflows generated by other assets
or groups of assets. Consequently, management has not allocated
goodwill at a level lower than the Group level. Goodwill is tested
for impairment at Group level.
We measured the Group's recoverable amount on a value-in-use
basis. Value-in-use represents the present value of the projected
future cash flows for the next five years based on the most recent
budget and forecasts approved by management. Cash flow projections
for a further five years are extrapolated based on revenue growth
rates trending down to the perpetuity growth rate, and beyond this
ten-year period cash flow projections have been estimated by
applying a perpetuity growth rate to the forecast cash flows in the
tenth year.
We consider that the key assumptions used in determining
value-in-use are the expected growth in each of the Group's revenue
streams, the expected gross margins for these revenue streams, our
operating and capital expenditure, the perpetuity growth rate and
the discount rate.
Expected future revenue is based on external forecasts of the
future demand in each of our revenue streams adjusted to reflect
specific factors such as our customer base, estimated market share
and available distribution channels, the possibility of new
entrants to the market and future technological developments. Cash
flows during the five-year budget and forecast period also reflect
the cost of materials and other direct costs, research and
development expenditure and selling, general and administrative
expenses. We estimated future revenue on current prices and market
expectations of future price changes and future costs based on past
experience and current prices and market expectations of future
price changes, including the impact of inflation across the regions
in which we operate.
We applied a perpetuity rate of 2% per annum which we consider
to be a reasonable estimate of the average long-term growth rate in
the markets for our products.
We calculated the value-in-use by applying a nominal discount
rate to the expected post-tax cash flows that was determined using
a capital asset pricing model and reflected current market interest
rates, relevant equity and size risk premiums and specific risks.
The equivalent pre-tax discount rate used was 13.4%.
A sensitivity analysis was performed on the single Group CGU,
using reasonably possible changes in revenue growth rates, forecast
cash flows and pre-tax discount rates and management concluded that
no reasonably possible change in any of the key assumptions would
result in the carrying value of the single Group CGU to exceed its
recoverable amount.
We did not recognise any goodwill impairment during 2022 and the
Group's recoverable amount was comfortably in excess of its
carrying amount for the purpose of impairment tests.
17 Right-of-use assets and lease liabilities
Right-of-use assets
Buildings Equipment Total
Group US$'000 US$'000 US$'000
--------------------------------- --------- --------- --------
Cost
Balance at 1 January 2021 6,115 1,706 7,821
Additions 2,321 898 3,219
Disposal - (22) (22)
Foreign exchange 24 (3) 21
--------------------------------- --------- --------- --------
Balance at 31 December 2021 8,460 2,579 11,039
--------------------------------- --------- --------- --------
Additions 4,308 3,023 7,331
On acquisition of subsidiaries 2,786 - 2,786
Disposal - - -
Foreign exchange (248) (104) (352)
--------------------------------- --------- --------- --------
Balance at 31 December 2022 15,306 5,498 20,804
--------------------------------- --------- --------- --------
Accumulated depreciation
Balance at 1 January 2021 718 188 906
Depreciation charge for the year 1,144 1,341 2,485
Foreign exchange (10) (14) (24)
--------------------------------- --------- --------- --------
Balance at 31 December 2021 1,852 1,515 3,367
--------------------------------- --------- --------- --------
Depreciation charge for the year 1,706 1,330 3,036
Disposal - - -
Foreign exchange (90) (62) (152)
--------------------------------- --------- --------- --------
Balance at 31 December 2022 3,468 2,783 6,251
--------------------------------- --------- --------- --------
Net book value
At 31 December 2020 5,397 1,518 6,915
--------------------------------- --------- --------- --------
At 31 December 2021 6,608 1,064 7,672
--------------------------------- --------- --------- --------
At 31 December 2022 11,838 2,715 14,553
--------------------------------- --------- --------- --------
Nature of leasing activities (in the capacity as lessee)
The Group has leases for corporate offices, development
facilities and certain equipment. The Group also acquired leases
with both the OpenFive and Solanium Labs acquisitions. These leases
have remaining lease terms ranging from four months to 8.5 years,
some of which include options to extend the leases for up to ten
years or to terminate the lease with notice periods of 90 days to
six months or at predetermined dates as specified within the lease
contract. The Group has classified the assets related to these
leases as right-of-use assets and the liabilities associated with
the future lease payments under these leases as lease liabilities.
The weighted average incremental borrowing rate applied to these
lease liabilities at initial recognition during the year was 3.95%
per annum.
At 31 December 2022 the carrying amounts of lease liabilities
are not reduced by the amount of payments that would be avoided
from exercising break clauses because at that date it was
considered reasonably certain that the Group would not exercise its
right to break the lease. Total lease payments of US$nil (2021:
US$0.1m) are potentially avoidable were the Group to exercise break
clauses at 31 December 2022.
The use of extension and termination options gives the Group
added flexibility in the event it has identified more suitable
premises in terms of cost and/or location or determined that it is
advantageous to remain in a location beyond the original lease
term. An option is only exercised when consistent with the Group's
strategy and the economic benefits of exercising the option exceed
the expected overall cost.
Amounts not included in the measurement of lease liabilities are
as follows:
Year ended Year ended
31 December 31 December
2022 2021
Group US$'000 US$'000
--------------------------------------------------------- ------------ ------------
Short-term lease expense and low-value lease expense 1,769 -
Expense relating to variable lease payments not included
in the measurement of lease liabilities 19 42
--------------------------------------------------------- ------------ ------------
1,788 42
--------------------------------------------------------- ------------ ------------
Lease liabilities
Total
Group US$'000
------------------------------- --------
At 1 January 2021 6,801
Additions 3,219
Disposals (32)
Interest expense 294
Lease payments (2,494)
Foreign exchange 40
------------------------------- --------
At 31 December 2021 7,828
------------------------------- --------
Additions 7,196
Interest expense 391
Lease payments (3,038)
On acquisition of subsidiaries 2,616
Foreign exchange (60)
------------------------------- --------
At 31 December 2022 14,933
------------------------------- --------
Lease liabilities are due as follows:
Group Group
31 December 31 December
2022 2021
US$'000 US$'000
--------------------------- ------------ ------------
Not later than one year 3,417 2,160
Between one and five years 9,158 5,525
Over five years 2,358 143
--------------------------- ------------ ------------
14,933 7,828
--------------------------- ------------ ------------
The total cash outflow for leases is as follows:
Year ended Year ended
31 December 31 December
2022 2021
Group US$'000 US$'000
------------------- ------------ ------------
Total cash outflow 3,038 2,494
------------------- ------------ ------------
The Group does not face a signi cant liquidity risk with regard
to its lease liabilities.
Company
The Company has no leases.
18 Investments
Group subsidiaries
All subsidiaries have been included in the consolidated
financial statements. Details of the Group's subsidiaries as at 31
December 2022 are as follows:
Proportion
of
ownership
interest
Country and
of voting
incorporation rights
and principal held by
place of Class of the
Name of subsidiary Principal activity business share Group
---------------------------- ---------------------------------- --------------- --------- ----------
Developing and licensing
high performance connectivity
silicon IP for the semiconductor
Alphawave IP Inc. industry Canada Ordinary 100%
Sales and sales support United
for silicon IP licencing States
Alphawave IP Corp. and custom silicon solutions. (Delaware) Ordinary 100%
To facilitate silicon British
Alphawave IP (BVI) IP licensing to WiseWave Virgin
Ltd. Technology Co., LTD Islands Ordinary 100%
Alphawave Call. Inc. Non-trading Canada Ordinary 100%
Alphawave Exchange
Inc. Non-trading Canada Ordinary 100%
To facilitate the investment
in WiseWave Technology
Alphawave IP Limited Co., LTD China Ordinary 100%
Developing and licensing
high performance connectivity
silicon IP for the semiconductor
Precise-ITC, Inc. industry Canada Ordinary 100%
AWIPInsure Limited Captive insurance company Barbados Ordinary 100%
Holding company provides
operational support in United
Alphawave Holdings Taiwan for Open-Silicon, States
Corp. Inc (Delaware) Ordinary 100%
Provides custom silicon
solutions and high -- United
speed connectivity silicon States
Open-Silicon, Inc IP (Delaware) Ordinary 100%
Open-Silicon Holding
Corp. Holding company Mauritius Ordinary 100%
United
Open-Silicon Development States
Corp. Dormant (Delaware) Ordinary 100%
United
Open-Silicon Engineering, States
Inc. Dormant (Delaware) Ordinary 100%
United
Open-Silicon International, States
Inc. Dormant (Delaware) Ordinary 100%
Open-Silicon Japan Dormant Japan Ordinary 100%
Provides research and
development contracting
Open-Silicon Research services to Open-Silicon
Private Ltd International, Inc. India Ordinary 100%
Provides sales and marketing
Yuanfang Silicon Technology contracting services to
(Nanjing) Co. Ltd Open-Silicon, Inc. China Ordinary 100%
United
Kingdom
(England
Alphawave 102022 Limited Dormant & Wales) Ordinary 100%
Developing optical Digital
Signal Processing chips
Solanium Labs Ltd for data centres Israel Ordinary 100%
Provides Sales support
for Solanium Labs, Ltd. United
Dissolved on 21 December States
Solanium Labs, Inc 2022 (Delaware) Ordinary 100%
---------------------------- ---------------------------------- --------------- --------- ----------
All of the subsidiaries, with the exception of Alphawave IP
(BVI) Ltd, Alphawave Call. Inc., Alphawave IP Limited, AWIPInsure
Limited, Alphawave Holdings Corp. and Alphawave 102022 Limited are
indirectly held subsidiaries.
The registered office of Alphawave IP Corp. and Alphawave
Holdings Corp. is 1730 N 1st St, Suite 650, San Jose, CA,
95112.
The registered office of Alphawave IP (BVI) Ltd is Trinity
Chambers, PO Box 4301, Road Town, Tortola, British Virgin
Islands.
The registered office of Alphawave IP Limited is 21 Avenida da
Praia Grande, No 409, Edificio China Law, 21 andar, em Macau.
The registered office of Precise-ITC, Inc. is 170 University
Avenue, 10th Floor, Toronto, Ontario, M5H 3B3.
The registered office of AWIPInsure Limited is 1st Floor,
Limegrove Centre, Holetown, St. James, Barbados.
The registered office of Open-Silicon, Inc, Open-Silicon
Development Corp, Open-Silicon Engineering, Inc and Open-Silicon
International, Inc is 490 N McCarthy Blvd #220, Milpitas, CA
95035.
The registered office of Open-Silicon Holding Corp (Mauritius)
is 3rd Floor, Les Cascades, Edith Cavell Street, Port Louis,
Mauritius.
The registered office of Open-Silicon Japan is c/o Akia Tax
Consultants, Shoei Kannai Building, 22, Sumiyoshicho 2-chrome,
Naka-ku, Yokohama, Kanagawa.
The registered office of Open-Silicon Research Private Ltd is
No. 11/1 & 12/1 Maruthi Infotech Centre, 2nd Floor, B-Block,
Indiranagar, Koramangala Intermediate Ring Road, Bangalore - 560
071, India.
The registered office of Yuanfang Silicon Technology (Nanjing)
Co. Ltd is Room 101, Building B, No. 300, Zhihui Road, Qilin
Science and Technology Innovation Park, Jiangning District,
Nanjing.
The registered office of Alphawave 102022 Limited is 65 Gresham
Street, 6th Floor, London, England, EC2V 7NQ.
The registered office of Solanium Labs Ltd. is 24 Hanagar, Hod
HaSharon 4527713, Israel.
The registered office of all other subsidiaries is 70 University
Ave, 10th Floor, Toronto, Ontario, Canada M5J 2M4.
Summary of the Company investments
Subsidiaries
Company US$'000
----------------------------------------- ------------
Cost
On incorporation -
Addition 18,236
Share-based payment capital contribution 4,155
----------------------------------------- ------------
At 31 December 2021 22,391
----------------------------------------- ------------
Addition 240,135
Share-based payment capital contribution 17,847
----------------------------------------- ------------
Carrying amount
At 31 December 2021 22,391
----------------------------------------- ------------
At 31 December 2022 280,373
----------------------------------------- ------------
In FY 2022, the Company acquired 100% of the share capital of
Banias Labs. Further details are provided in note 33.
Investment in joint ventures
The following entities have been included in the consolidated
financial statements using the equity method:
Proportion
of
ownership
interest
Country and
of voting
incorporation rights
and principal held by
place of Class of the
Name of joint venture Principal activity business share Group
---------------------- ------------------------- --------------- --------- ----------
A semiconductor device
WiseWave Technology company focused on the
Co., LTD mainland Chinese market China Ordinary 42.5%
---------------------- ------------------------- --------------- --------- ----------
The registered office of WiseWave Technology Co., LTD is Room
105, No. 6, Baohua Road, Hengqin New District, Zhuhai, China.
Joint venture
Group US$'000
------------------------ -------------
Cost and net book value
At 1 January 2021 -
Additions 22,360
Share of loss (12,939)
------------------------ -------------
At 31 December 2021 9,421
Additions 9,060
Share of loss (18,481)
------------------------ -------------
At 31 December 2022 -
------------------------ -------------
Summarised financial information for joint venture:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
--------------------------------------------------------- ------------ ------------
Current assets 18,536 32,114
Property and equipment 1,908 12
Intangible assets 71,331 29,018
Other non-current assets 4,883 -
Current liabilities 27,351 9,707
Non-current liabilities 42,317 -
--------------------------------------------------------- ------------ ------------
Included in the above amounts are:
Cash and cash equivalents 15,729 30,664
Current financial liabilities (excluding trade payables) - -
Non-current financial liabilities (excluding trade - -
payables)
--------------------------------------------------------- ------------ ------------
Net assets (100%) 26,990 51,437
Group share of net assets (42.5%) 11,471 21,861
--------------------------------------------------------- ------------ ------------
Period ended 31 December:
Revenues 5,517 -
(Loss) from continuing operations (37,764) (1,522)
Other comprehensive income - -
Included in the above amounts are:
Depreciation and amortisation (18,267) (925)
Interest expense (2,936) (73)
--------------------------------------------------------- ------------ ------------
Total comprehensive expense (100%) (37,764) (1,522)
Group share of total comprehensive expense (42.5%) (16,050) (647)
--------------------------------------------------------- ------------ ------------
The above summary financial information has been aligned with
the accounting policies of the Group. The recognition of intangible
assets and related amortisation has been adjusted for the purposes
of aligning the Group recognition policies. Revenue transactions
between Alphawave and WiseWave are accounted for on the basis that
we are principal and they are agent.
Share of post-tax loss of equity-accounted joint ventures:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
----------------------------------------------------- ------------ ------------
Share of loss 16,050 647
Elimination of gains from sales to the joint venture 2,431 12,292
----------------------------------------------------- ------------ ------------
Total 18,481 12,939
----------------------------------------------------- ------------ ------------
Revenues of US$37.5m (2021: US$29.8m) were made from provision
of IP to WiseWave. To the extent that WiseWave has not yet utilised
the IP, the proportion of the Group's investment has been
eliminated and will be released over the term of the subscription
licence of five years.
19 Trade and other receivables
Group Group Company Company
2022 2021 2022 2021
Current US$'000 US$'000 US$'000 US$'000
------------------------------------------ -------- -------- -------- --------
Trade receivables from contracts with
customers 16,455 12,074 - -
Less: expected credit loss provision (2,184) - - -
------------------------------------------ -------- -------- -------- --------
Trade receivables at amortised cost
- net 14,271 12,074 - -
Other receivables - current 18,888 158 13,922 -
Other receivables - non-current 19,272 - 17,091 -
------------------------------------------ -------- -------- -------- --------
Total financial assets other than
cash and cash equivalents carried
at amortised cost 52,431 12,232 31,013 -
Prepayments 70,601 262 272 146
Capitalised contract costs 874 609 - -
------------------------------------------ -------- -------- -------- --------
Total trade and other receivables 123,906 13,103 31,285 146
------------------------------------------ -------- -------- -------- --------
Amounts owed from Group subsidiaries
- current - - 14,769 367
Amounts owed from Group subsidiaries
- non-current - - 260,011 22,997
Total trade and other receivables
and amounts owed from Group subsidiaries 123,906 13,103 306,065 23,510
------------------------------------------ -------- -------- -------- --------
Group
The carrying value of trade and other receivables approximates
to fair value.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses (ECL) using a lifetime ECL provision for
trade and other receivables. The expected loss rates are based on
the Group's historical credit losses. The historic loss rates are
then adjusted for current and forward-looking information on
macroeconomic factors affecting the Group's customers.
The Group's exposure to credit and market risks, including
impairments and allowances for credit losses, relating to trade and
other receivables is disclosed in note 28.
All trade and other receivables have been reviewed under the ECL
impairment model. As at 31 December 2022, an ECL provision of
US$2.2m was recognised. As at 31 December 2021, the Group's ECL
provision was not material and therefore not recognised. See
financial instruments note 28 for information on the Group's ECL
policy.
Prepayments of US$70.6m have increased significantly from 2021.
This increase was due to prepayments of US$50.9m from the OpenFive
acquisition, which represent advance payments to foundries to
reserve fab capacity and are predominantly covered by advance
receipts from customers and other prepayments of US$19.7m (2021:
US$2.5m).
The Company has significant current and non-current amounts owed
to it by other Group entities. Current amounts relate to normal
course operational trading where balances are expected to be
recovered within a year. Non-current amounts relate to loans to
non-trading entities in respect of our acquisition of OpenFive and
equity investment in WiseWave, where balances are not expected to
be recovered within a year.
Current and non-current other receivables in both the Company
and the Group includes prepayments of deferred compensation to
employees in lieu of share-based remuneration committed as part of
the acquisition of Banias. These were paid in cash and are held by
a third party under the terms of the sale and purchase agreement to
be released to employees over time conditional upon their continued
employment. There is also a similar balance within trade and other
receivables in the Group which relates to a prepayment of deferred
compensation based on continued employment with the Group as part
of the Precise-ITC acquisition.
20 Inventories
Group Group Company Company
31 December 31 December 31 December 31 December
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
------------------ ------------ ------------ ------------ ------------
Finished goods 3,616 - - -
Work in progress 10,413 - - -
Raw materials 4,032 - - -
------------------ ------------ ------------ ------------ ------------
Total inventories 18,061 - - -
------------------ ------------ ------------ ------------ ------------
The carrying value of inventories at 31 December 2022 is
presented net of the US$0.5m provision for obsolescence.
21 Trade and other payables
Trade and other payables
Group Group Company Company
31 December 31 December 31 December 31 December
2022 2021 2022 2021
Current US$'000 US$'000 US$'000 US$'000
--------------------------------------- ------------ ------------ ------------ ------------
Trade payables 23,573 1,317 1,302 366
Other payables 18,956 - 6,249 -
Accrued expenses 33,287 4,038 4,826 637
Contingent consideration 5,000 - - -
Employee-related liabilities 1,035 450 23 10
Social security and other taxes 1,204 - - -
--------------------------------------- ------------ ------------ ------------ ------------
Total current trade and other payables 83,055 5,805 12,400 1,013
--------------------------------------- ------------ ------------ ------------ ------------
Group Group Company Company
31 December 31 December 31 December 31 December
2022 2021 2022 2021
Non-current US$'000 US$'000 US$'000 US$'000
------------------------------------ ------------ ------------ ------------ ------------
Other payables 10,555 - 4,423 -
------------------------------------ ------------ ------------ ------------ ------------
Total non-current trade and other
payables 10,555 - 4,423 -
------------------------------------ ------------ ------------ ------------ ------------
Total trade and other payables 93,610 5,805 16,823 1,013
------------------------------------ ------------ ------------ ------------ ------------
Amounts owed to Group subsidiaries
- current - - - 150
Total trade and other payables and
amounts owed to Group subsidiaries 93,610 5,805 16,823 1,163
------------------------------------ ------------ ------------ ------------ ------------
Group
The carrying value of trade and other payables classified as
financial liabilities measured at amortised cost approximates fair
value.
Trade payables have increased from US$1.3m in 2021 to US$23.6m
in 2022. The increase was predominantly due to significant
purchases of lab equipment in December 2022 and invoices received
from foundry suppliers at the end of the year.
Both current other payables of US$19.0m (2021: US$nil) and
non-current other payables of US$10.6m (2021: US$nil) have
increased due to deferred compensation payments in lieu of
share-based remuneration committed as part of the acquisition of
Banias.
Accrued expenses have increased from US$4.0m in 2021 to US$33.3m
in 2022. The increase is primarily due to accruals of sales tax in
an overseas subsidiary, retention bonuses due to employees who
joined Alphawave as part of the OpenFive and Precise-ITC
acquisitions and interest due on our borrowings. Contingent
consideration is recorded at fair value, see note 33 for
details.
22 Loans and borrowings
The Group's sources of borrowing for liquidity purposes include
the Credit Agreement dated 12 October 2022 and the Incremental
Facility Amendment dated 3 November 2022. These comprise a US
dollar-denominated Delayed Draw Term Loan B ('Term Loan') of
US$100.0m and a multi-currency revolving credit facility (RCF) of
up to US$125.0m, provided by a syndicate of banks.
Both the Term Loan and the RCF have a term of five years. The
Term Loan and US$110.0m of the RCF were drawn in full in October
2022 in connection with the Group's acquisition of Banias Labs.
US$15.0m of the RCF remains undrawn. Both the Term Loan and RCF
bear interest at a floating rate of interest linked to SOFR
(secured overnight financing rate), with the overall rate dependent
on our total net leverage ratio, defined as the ratio of our
consolidated total debt outstanding to our consolidated adjusted
EBITDA.
Our borrowings under the Credit Agreement and Incremental
Facility Amendment are subject to a net leverage ratio and a fixed
charges coverage ratio which are defined in the Credit Agreement
and tested quarterly. The maximum permissible net leverage ratio is
3.75x up to the period ending 30 June 2023, 3.5x up to the period
ending 31 March 2024 and 3.0x thereafter. The minimum fixed charges
coverage ratio is 1.25x over the term of the debt.
Group Group Company Company
31 December 31 December 31 December 31 December
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
----------------- ------------ ------------ ------------ ------------
Current
Bank loan 5,000 - 5,000 -
Non-current
Bank loan 203,750 - 203,750 -
IIA(1) 1,451 - - -
----------------- ------------ ------------ ------------ ------------
Total borrowings 210,201 - 208,750 -
----------------- ------------ ------------ ------------ ------------
1. Israel Innovation Authority.
23 Employee benefits liabilities
Liabilities for employee benefits comprise:
Group Group Company Company
31 December 31 December 31 December 31 December
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
------------------------- ------------ ------------ ------------ ------------
Accrual for annual leave 1,035 450 23 10
------------------------- ------------ ------------ ------------ ------------
24 Deferred tax
The movement on the deferred tax account is as shown below:
Group Company
US$'000 US$'000
------------------------------ -------- --------
2022
At 1 January 2022 422 -
Credit to profit or loss (278) -
On acquisition of subsidiaries 31,094 -
Transfer of tax credits (4,350) -
Foreign exchange 82 -
------------------------------ -------- --------
At 31 December 2022 26,970 -
------------------------------ -------- --------
2021
At 1 January 2021 492 -
Credit to profit or loss (74) -
Foreign exchange 4 -
------------------------------ -------- --------
At 31 December 2021 422 -
------------------------------ -------- --------
The deferred account liability is made up as follows:
Group Group Company Company
31 December 31 December 31 December 31 December
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
------------------------------- ------------ ------------ ------------ ------------
Accelerated capital allowances 676 74 - -
Leases (65) (41) - -
Intangibles 29,194 - - -
Transfer of tax credits (4,350) - - -
Other temporary differences 1,515 389 - -
------------------------------- ------------ ------------ ------------ ------------
Total 26,970 422 - -
------------------------------- ------------ ------------ ------------ ------------
See note 33 for details of the breakdown of acquired intangibles
deferred tax liability by acquisition.
There are unrecognised deferred tax assets relating mainly to
unutilised US tax loses arising from the acquisition of OpenFive.
See note 33 for more details.
As at 31 December 2022, the Group has a deferred tax asset of
US$10.0m and a deferred tax liability of US$37.0m. Where we have
recognised a deferred tax asset and a deferred tax liability in the
same taxation jurisdiction, these have been netted off resulting in
a deferred tax asset of US$2.7m and a deferred tax liability of
US$29.7m in the consolidated statement of financial position.
25 Share capital
Number Number
of shares US$'000 of shares US$'000
Authorised share capital 2022 2022 2021 2021
-------------------------------- ----------- -------- ----------- -------
Ordinary shares of GBP0.01 each 695,068,200 9,751 664,965,934 9,399
-------------------------------- ----------- -------- ----------- -------
Number
Issued and fully paid of shares US$'000
----------------------------------------------- ---------- -------
Redeemable preference shares of GBP1 each
Balance as at 31 December 2020 - -
Primary share issue at Initial Public Offering 50,000 71
----------------------------------------------- ---------- -------
50,000 71
----------------------------------------------- ---------- -------
Shares redeemed (50,000) (71)
----------------------------------------------- ---------- -------
Balance as at 31 December 2021 - -
----------------------------------------------- ---------- -------
Balance as at 31 December 2022 - -
----------------------------------------------- ---------- -------
Number US$'000
Issued and fully paid of shares
---------------------------------------------------- ----------- ---------
Ordinary shares of GBP0.01 each
Balance as at 31 December 2020 in Alphawave IP Inc. 27,927,252 -
Exercise of options pre Initial Public Offering 265,701 -
---------------------------------------------------- ----------- ---------
Sub-total 28,192,953 -
---------------------------------------------------- ----------- ---------
20 for 1 share exchange 563,859,060 796,958
Shares issued to option holders on exercise 13,049,861 18,445
---------------------------------------------------- ----------- ---------
576,908,921 815,403
Primary share issue at Initial Public Offering 87,835,796 124,147
Further issue of shares 221,217 313
---------------------------------------------------- ----------- ---------
664,965,934 939,863
---------------------------------------------------- ----------- ---------
Capital reduction - (930,464)
---------------------------------------------------- ----------- ---------
Balance as at 31 December 2021 664,965,934 9,399
---------------------------------------------------- ----------- ---------
Shares issued to option holders on exercise 29,442,453 344
Further issue of shares 659,813 8
---------------------------------------------------- ----------- ---------
Balance as at 31 December 2022 695,068,200 9,751
---------------------------------------------------- ----------- ---------
On 14 May 2021, the Company acquired the entire issued share
capital of Alphawave IP Inc. in return for 576,908,921 ordinary
shares issued by the Company with a nominal value of GBP1. This was
based on 20 shares in the Company for each share in Alphawave IP
Inc.
The Company issued 87,835,796 shares, as a primary offering,
with a nominal value of GBP1 as part of its listing on the London
Stock Exchange at a price of US$5.79 (GBP4.10), resulting in gross
proceeds to the Company of US$509.0m (GBP360.1m) accounted for as
share capital of US$124.1m (GBP87.8m) and share premium of
US$384.9m (GBP272.3m).
Net proceeds after bank syndication fees were US$492.1m
(GBP347.1m) with further costs relating to the issuance of shares
resulting in total costs of US$20.4m (GBP14.5m), chargeable to the
share premium account. However, the Company received US$22.2m
(GBP15.7m) as proceeds of a stock stabilisation programme which
were set off against these Initial Public Offering costs, resulting
in the net proceeds of US$1.8m being posted to the share premium
account. The Company had further costs of US$10.0m (GBP7.2m)
relating to the IPO but not relating directly to the issuance of
new shares. These have been charged to the statement of
comprehensive income as non-recurring costs.
As part of the transaction there was a secondary offering where
certain employees, Directors and founders sold a total of
120,859,856 shares, including the 13,049,861 options converted to
shares and described below, at GBP4.10 per share.
In addition, all options held over Alphawave IP Inc. stock
became, by way of an amendment to option agreements, options in
Company shares, on the basis of 20 options in the Company for 1
option in Alphawave IP Inc., each with an exercise price of 1/20th
of the original exercise price at the grant date.
On the Initial Public Offering date and as part of the secondary
offering, 13,049,861 options were exercised into newly issued
ordinary shares in the Company. The options exercised all had
exercise prices below the GBP1 nominal value as a result of them
maintaining their original exercise prices when they were granted
as options in the shares of Alphawave IP Inc. This resulted in
exercise proceeds of US$4.1m (GBP2.8m) with the shortfall in share
capital of US$14.4m (GBP10.2m) being transferred from the merger
reserve to the share capital account.
Finally, at IPO a further 221,217 ordinary shares were issued
and purchased by our Non-Executive Directors at the market price of
GBP4.10.
The reorganisation of the Company's corporate structure
described above has been accounted for as a common control
transaction and has been given effect from 1 January 2020. This has
resulted in the opening share capital position being adjusted as if
the reorganisation had happened on that date. In addition, a merger
reserve has been established which reflects the difference between
the share capital issued to acquire the shares in Alphawave IP Inc.
and the share capital of Alphawave IP Inc. acquired at the
transaction date of 14 May 2021.
Pursuant to the General Meeting of the Company held on 12 May
2021, it was resolved that the Company's share capital be reduced
from GBP1 per ordinary share, to GBP0.01. This was confirmed by an
Order of the High Court of Justice, Chancery Division and certified
by the registrar of Companies on 16 and 17 November,
respectively.
On 6 December 2021 the preference shares were redeemed.
On 8 March 2022 the Company issued 300,000 shares at GBP0.01 per
share and 108,333 shares at GBP0.187058 per share.
On 16 March 2022 the Company issued 1,874,860 shares at GBP0.01
per share and 40,500 shares at GBP0.187058 per share.
On 5 May 2022 the Company issued 2,151,680 ordinary shares at
GBP0.01 per share.
On 24 May 2022 the Company issued 1,289,483 ordinary shares at
GBP0.01 per share, 15,417 ordinary shares at GBP0.8251 per share
and 54,007 ordinary shares at GBP0.187058 per share.
On 25 May 2022 the Company issued 12,028 ordinary shares at
GBP0.8251 per share and 5,461 ordinary shares at GBP0.187058 per
share.
On 26 May 2022 the Company issued 37,972 ordinary shares at
GBP0.8251 per share, 182,025 ordinary shares at GBP0.187058 per
share and 154,167 ordinary shares at GBP0.01 per share.
On 30 May 2022 the Company issued 64,583 ordinary shares at
GBP0.187058 per share, 8,333 ordinary shares at GBP0.018121 per
share, 1,002,000 ordinary shares at GBP0.01 per share.
On 31 May 2022 the Company issued 100,387 ordinary shares at
GBP0.01 per share.
On 1 June 2022 the Company issued 7,877 ordinary shares at
GBP0.187058 per share.
From 13 June 2022 to 30 June 2022 the Company issued 7,890,627
ordinary shares at GBP0.01 per share, 130,083 ordinary shares at
GBP0.018121 per share, 803,121 ordinary shares at GBP0.187058 per
share and 223,233 ordinary shares at GBP0.8251 per share.
From 5 July 2022 to 12 July 2022 the Company issued 3,647,500
ordinary shares at GBP0.01 per share and 58,749 ordinary shares at
GBP0.187058 per share.
From 12 July 2022 to 2 August 2022 the Company issued 3,186,688
ordinary shares at GBP0.01 per share, 131,250 ordinary shares at
GBP0.018121 per share, 183,434 ordinary shares at GBP0.187058 per
share and 19,583 ordinary shares at GBP0.825101 per share.
Between the 3 August 2022 to 25 August 2022 the Company issued
628,750 ordinary shares at GBP0.01 per share, 16,567 ordinary
shares at GBP0.187058 per share and 4,166 ordinary shares at
GBP0.825101 per share.
From 26 August 2022 to 23 September 2022 the Company issued
751,354 ordinary shares at GBP0.01 per share, 10,416 ordinary
shares at GBP0.1871 per share and 10,000 ordinary shares at
GBP0.825101 per share.
From 30 September 2022 to 12 October 2022 the Company issued
1,820,373 ordinary shares at GBP0.01 per share, 62,500 ordinary
shares at GBP0.187058 per share and 50,001 ordinary shares at
GBP0.825101 per share.
From 21 October 2022 to 21 November 2022 the Company issued
2,145,858 ordinary shares at GBP0.01 per share, 50,860 ordinary
shares at GBP0.018121 per share and 163,751 ordinary shares at
GBP0.187058 per share.
From 28 November 2022 to 19 December 2022 the Company issued
527,207 ordinary shares at GBP0.01 per share, 104,166 ordinary
shares at GBP0.018121 per share, 56,249 ordinary shares at
GBP0.187058 per share and 16,667 ordinary shares at GBP0.825101 per
share.
Rights and restrictions
Each ordinary share carries the right to one vote on a poll. The
right to vote is determined by reference to the register of members
at a time specified in the notice of meeting. All dividends shall
be declared and paid according to the amounts paid up on the share.
The shares do not carry any rights in respect to capital to
participate in a distribution (including on winding up) other than
those that exist as a matter of law. The shares are not
redeemable.
26 Reserves
The following describes the nature and purpose of each reserve
within equity:
Reserve Description and purpose
------------------------ ----------------------------------------------------
Amount subscribed for share capital at nominal
Share capital value.
The premium arising on issue of equity shares,
Share premium net of issue expenses.
The share-based payment reserve is used to recognise
Share-based payment the grant date fair value of shares issued to
reserve employees.
The difference between the share capital issued
to acquire the shares in Alphawave IP Inc. and
the share capital of Alphawave IP Inc. acquired
Merger reserve at the transaction date of 14 May 2022.
Gains or losses arising on retranslating the net
Foreign exchange reserve assets of overseas operations.
All other net gains and losses and transactions
Retained earnings with owners not recognised elsewhere.
------------------------ ----------------------------------------------------
27 Share-based payment
The Company operates two equity-settled share-based incentive
schemes for employees - an option scheme, which was utilised prior
to the IPO, and a Restricted Share Unit (RSU) scheme used both pre
and post IPO. The terms of any options and RSUs granted under the
schemes are specified within individual grant agreements.
Both options and RSUs typically vest over four years with 25%
vesting after one year from the grant date with the remaining 75%
vesting equally each month over the following 36 months. They have
a life of five years which can be extended with Board approval. The
exercise price of option grants was set at the fair value of the
Company's common shares as determined by the implied valuation at
the prior funding round.
Each share option or RSU in Alphawave IP Inc. became 20 share
options or RSUs in the Company by way of an amendment to the option
or RSU agreements immediately prior to the Company's admission to
listing on 18 May 2021. The exercise price of any share options
outstanding at that time was divided by 20.
Each share option or RSU converts into one voting share of the
Company on exercise or vesting. No amounts are paid or payable by
the recipient on receipt of the option or RSU. The options or RSUs
carry neither rights to dividends nor voting rights. Options may be
exercised at any time from the date of vesting to the date of their
expiry. The only vesting condition of the options and RSUs is that
the individual remains an employee of the Group over the vesting
period.
31 December
2022 31 December
31 December Weighted 31 December 2021
2022 average 2021 Weighted
Number exercise Number average
of share price of share exercise
Options on non-voting common shares: options (US$) options price (US$)
------------------------------------- ------------ ----------- ----------- ------------
Outstanding at the beginning of the
period 95,273,220 0.280 4,557,955 1.874
Exercised during the period (30,102,266) 0.102 (936,944) 5.760
Forfeited during the period (2,588,486) 1.381 - -
Granted during the period 23,109,685 1.640 1,142,650 20.04
Share exchange during the period - - 90,509,559 -
------------------------------------- ------------ ----------- ----------- ------------
Outstanding at the end of the period 85,692,153 0.712 95,273,220 0.280
------------------------------------- ------------ ----------- ----------- ------------
Exercisable at the end of the period 41,720,539 0.221 63,833,174 0.080
------------------------------------- ------------ ----------- ----------- ------------
The exercise price of options over non-voting shares outstanding
at 31 December 2022 ranged between US$0.08 and US$1.13 (2021:
US$0.08 and US$1.13) after adjusting for the 20:1 share split which
happened immediately prior to the Initial Public Offering in May
2021 and their weighted average contractual life was 2.30 years
(2021: 3.07 years).
The weighted average value per option during the year was
US$1.60 (2021: US$0.17).
The total expense included within the consolidated statement of
comprehensive income for the Group for the current year is
US$15,695,000 (2021: US$6,143,000), and for the Company is
US$235,000 (period ended 31 December 2021: US$342,000).
The following information is relevant in the determination of
the fair value of options granted during the year:
31 December 31 December
2022 2021
------------------------------ -------------- --------------
Option pricing model used Black-Scholes- Black-Scholes-
Merton Merton
Risk-free interest rate 3.44% 0.91%
Expected volatility 29.72% 29.72%
Expected dividend yield 0% 0%
Expected life of stock option 4 years 4 years
-------------------------------- -------------- --------------
The Group has determined the forfeiture rate to be nil and
volatility was determined in reference to listed entities similar
to the Group.
Volatility was determined with reference to similar listed
entities using the historical stock price volatility of those
entities over the estimated expected term of the option awards.
28 Financial instruments - risk management
The Group is exposed through its operations to the following
financial risks:
-- credit risk;
-- interest rate risk;
-- foreign exchange risk;
-- other market price risk;
-- liquidity risk; and
-- capital risk.
In common with other businesses, the Group is exposed to risks
that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented
throughout these financial statements.
There have been no substantive changes in the Group's exposure
to financial instrument risks, its objectives, policies and
processes for managing those risks or the methods used to measure
them from previous periods unless otherwise stated in this
note.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
-- Trade and other receivables
-- Cash and cash equivalents
-- Trade and other payables
The Group and Company's financial instruments are categorised as
follows:
Financial assets
Amortised cost
Group Group Company Company
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
----------------------------------------- -------- -------- -------- --------
Trade receivables 14,271 12,074 - -
Amounts owed by Group undertakings - - 274,780 23,364
Other receivables 109,635 158 31,285 -
Accrued revenue 58,534 31,719 - -
Cash and cash equivalents 186,231 500,964 125,729 463,360
----------------------------------------- -------- -------- -------- --------
Total financial assets held at amortised
cost 368,671 544,915 431,794 486,724
----------------------------------------- -------- -------- -------- --------
Financial liabilities
Amortised cost
Group Group Company Company
31 December 31 December 31 December 31 December
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
----------------------------------- ------------ ------------ ------------ ------------
Trade payables 23,573 1,317 1,302 366
Other payables 30,715 - 10,672 -
Accrued expenses 33,287 4,038 4,826 637
Contingent consideration 5,000 - - -
Employee-related liabilities 1,035 450 23 10
Amounts owed to Group undertakings - - - 150
Flexible spending account 5,200 6,819 - -
Loans and borrowings 210,201 - 208,750 -
----------------------------------- ------------ ------------ ------------ ------------
Total financial liabilities held
at amortised cost 309,011 12,624 225,573 1,163
----------------------------------- ------------ ------------ ------------ ------------
Financial instruments not measured at fair value
Financial instruments not measured at fair value include cash
and cash equivalents, trade and other receivables, trade and other
payables, and loans and borrowings.
Due to their short-term nature, the carrying value of cash and
cash equivalents, trade and other receivables, and trade and other
payables approximates their fair value.
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. Whilst
retaining ultimate responsibility for them, it has delegated the
authority for designing and operating processes that ensure the
effective implementation of the objectives and policies to the
Group's centralised finance function from which the Board receives
regular updates.
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Group's competitiveness and flexibility. Further details regarding
these policies are set out below:
Credit risk
The Group recognises a loss allowance for expected credit losses
(ECL) on accounts receivable and accrued revenue that are measured
at amortised cost, under IFRS 9. The Group applies the simplified
approach for accounts receivable and accrued revenue and recognises
the lifetime ECL for these assets. The simplified approach allows
entities to recognise lifetime expected losses on all these assets
without the need to identify significant increases in credit
risk.
The ECL on accounts receivable and accrued revenue is estimated
using a provision matrix based on the Group's historical credit
loss experience, adjusted for factors that are specific to the
customers, and general current and forecasted economic conditions
at the reporting date, including time value of money where
appropriate. There may be circumstances that lead management to
conclude on different values of ECL for particular trade
receivables and accrued revenue balances than those suggested by
the matrix.
The Group has grouped its trade receivables and contract assets
based on credit risk factors for the purposes of constructing the
provision matrix. The Group uses the following credit risk
groupings and estimates different loss rates for each grouping:
-- Start-up based in developing country: gross carrying amount
US$25.3m, impairment allowance US$0.3m, net carrying amount
US$25.0m
-- Start-up based in RoW: gross carrying amount US$21.5m,
impairment allowance US$1.2m, net carrying amount US$20.3m
-- Established company based in developing country: gross
carrying amount US$8.2m, impairment allowance US$0.2m, net carrying
amount US$8.0m
-- Established company based in RoW: gross carrying amount
US$20.0m, impairment allowance US$0.5m, net carrying amount
US$19.5m
31 December 31 December
2022 2021
US$'000 US$'000
----------------------------------------------------------- ----------- -----------
Opening ECL provision - -
----------------------------------------------------------- ----------- -----------
Loss allowance measured at an amount equal to twelve-month - -
expected credit losses
Loss allowance measured at an amount equal to lifetime
expected credit loss for trade receivables and contract
assets 2,184 -
Financial assets purchased or originated credit-impaired - -
----------------------------------------------------------- ----------- -----------
Closing ECL provision 2,184 -
----------------------------------------------------------- ----------- -----------
The Group recognised an expected credit loss in the statement of
comprehensive income of US$2.2m in 2022. This was derived from
multiple customers who had either overdue trade receivables
balances or aged accrued revenue balances, or both. As at 31
December 2022, US$1.5m of accounts receivable were greater than 90
days overdue and US$0.7m of accrued revenue was aged greater than
one year.
The Group had accounts receivable from one customer that made up
20% (2021: 25%) of the total balance. None of the amounts
outstanding have been challenged by the customer and the Group
continues to conduct business with them on an ongoing basis.
Accordingly, management has no reason to believe that these
balances are not fully collectible in the future.
Credit risk also arises from cash and cash equivalents and
deposits with banks and financial institutions. The Group monitors
the credit quality of financial institutions where it keeps its
funds. Currently, it deals with a bank having Aa2 credit rating by
Moody's.
The Group trades only with recognised, creditworthy third
parties and independent credit checks and credit limits are managed
by the trading entities. Credit limits can only be exceeded if
authorised by the Chief Financial Officer. Receivable balances are
monitored on an ongoing basis with the result that the Group's
exposure to bad debts is not significant, especially given past
payment history of longstanding customers. There are no significant
concentrations of credit risk within the Group.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices whether those changes are caused by factors specific
to the individual financial instrument or its issuer, or factors
affecting similar financial instruments traded in the market.
Market price risks include interest rate risk, currency risk and
other price risk.
Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. In the prior year, the Group was
exposed to interest rate risk on its floating rate bank
indebtedness. If the interest rates were to fluctuate 5%, there
would be no significant impact on the Group's financial statements
due to the short-term nature of the debt.
Foreign exchange risk
Foreign exchange risk is the risk to the Group's earnings that
arise from fluctuations of foreign exchange rates and the degree of
volatility of these rates. There is a risk that significant
fluctuations in the exchange rates between US$ and CAD$ and between
US$ and GBP cause an adverse impact on the Group's profitability.
The Group does not use derivative instruments to reduce its
exposure to foreign exchange risk.
The Group's exposure to foreign exchange risk is as follows:
CAD GBP ILS INR RMB Total
31 December 2022 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------- -------- -------- -------- -------- -------- --------
Cash and cash equivalents (6,648) 125,218 833 1,965 12,986 134,354
Trade and other receivables - - - 1,572 23 1,595
Accrued income - - - - - -
Trade and other payables 1,663 952 794 2,660 10,039 16,108
Deferred income - - - - 70,324 70,324
---------------------------- -------- -------- -------- -------- -------- --------
(4,985) 126,170 1,627 6,197 93,372 222,381
---------------------------- -------- -------- -------- -------- -------- --------
CAD GBP Total
31 December 2021 US$'000 US$'000 US$'000
---------------------------- -------- -------- --------
Cash and cash equivalents 876 364,837 365,713
Trade and other receivables 12,836 146 12,982
Accrued income 28,016 - 28,016
Trade and other payables 4,615 366 4,981
Deferred income 12,661 - 12,661
---------------------------- -------- -------- --------
59,004 365,349 424,353
---------------------------- -------- -------- --------
As at 31 December 2022, if CAD$ had strengthened/weakened by 5%
with all other variables held constant, total Group loss for the
year would have changed from US$1,086,000 to be a profit of
approximately US$3,721,000 and a loss of US$5,893,000 (2021: profit
of US$10,405,000 and US$9,640,000), respectively, mainly as a
result of the foreign exchange gains and losses on translation of
foreign exchange financial instruments.
As at 31 December 2022, if GBP had strengthened/weakened by 5%
with all other variables held constant, total Group loss for the
year would have changed from US$1,086,000 to be a loss of
approximately US$503,000 and US$1,669,000 (2021: profit of
US$10,376,000 and US$9,631,000) respectively, mainly as a result of
the foreign exchange gains and losses on translation of foreign
exchange financial instruments.
As at 31 December 2022, if ILS had strengthened/weakened by 5%
with all other variables held constant, total Group loss for the
year would have changed from US$1,086,000 to be a loss of
approximately US$1,068,000 and US$1,104,000 (2021: US$nil and
US$nil) respectively, mainly as a result of the foreign exchange
gains and losses on translation of foreign exchange financial
instruments.
As at 31 December 2022, if INR had strengthened/weakened by 5%
with all other variables held constant, total Group loss for the
year would have changed from US$1,086,000 to be loss of
approximately US$899,000 and US$1,273,000 (2021: US$nil and US$nil)
respectively, mainly as a result of the foreign exchange gains and
losses on translation of foreign exchange financial
instruments.
As at 31 December 2022, if RMB had strengthened/weakened by 5%
with all other variables held constant, total Group loss for the
year would have changed from US$1,086,000 to be a loss of
approximately US$996,000 and US$1,176,000 (2021: US$nil and US$nil)
respectively, mainly as a result of the foreign exchange gains and
losses on translation of foreign exchange financial
instruments.
Other price risk
Other price risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in market prices (other than those arising from interest rate risk
or currency risk), whether those changes are caused by factors
specific to the individual financial instrument or its issuer, or
factors affecting all similar financial instruments traded in the
market. There are no financial assets subject to market rate price
fluctuations. The Group's exposure to other price risk is
minimal.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance charges and principal repayments on its
debt instruments. Liquidity risk is the risk that the Group will
not be able to meet its financial obligations as they fall due.
The Group's policy is to ensure that it will always have
sufficient liquid assets to allow it to meet its liabilities when
they become due.
The Group manages its liquidity risk by reviewing its growth
plans on an ongoing basis as well as maintaining excess capacity on
its line of credit.
The following table sets out the contractual maturities
(representing undiscounted contractual cash flows) of financial
liabilities:
Due between
Due within 1 and Due >
1 year 5 years 5 years Total
31 December 2022 US$'000 US$'000 US$'000 US$'000
----------------------------- ---------- ----------- -------- --------
Trade payables 23,573 - - 23,573
Other payables 20,160 10,555 - 30,715
Accrued expenses 33,287 - - 33,287
Contingent consideration 5,000 - - 5,000
Employee-related liabilities 1,035 - - 1,035
Loans and borrowings 5,000 205,201 - 210,201
Flexible spending account 5,200 - - 5,200
Lease liabilities 3,756 8,819 2,358 14,933
----------------------------- ---------- ----------- -------- --------
97,011 224,575 2,358 323,944
----------------------------- ---------- ----------- -------- --------
Due between
Due within 1 and 5 Due >
1 year years 5 years Total
31 December 2021 US$'000 US$'000 US$'000 US$'000
----------------------------- ---------- ----------- --------- ---------
Trade payables 1,317 - - 1,317
Other payables - - - -
Accrued expenses 4,038 - - 4,038
Employee-related liabilities 450 - - 450
Loans and borrowings - - - -
Flexible spending account 6,819 - - 6,819
Lease liabilities 2,160 5,525 143 7,828
----------------------------- ---------- ----------- --------- ---------
14,784 5,525 143 20,452
----------------------------- ---------- ----------- --------- ---------
Capital risk management
The Group's primary objectives with respect to its capital
management 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 and to have sufficient cash
resources to fund product development and operations.
As at 31 December 2022, the Group had gross borrowings through
its Term Loan and RCF of US$208.8m as detailed in note 22. The
Group remains in compliance with its banking covenants. The Group
maintains a significant gross cash position of US$186.2m which it
holds in instant access, fixed term deposit or notice accounts
across various banks.
Management reviews its capital management approach on an ongoing
basis. During the course of 2022, the Group's approach to capital
management has adapted to reflect the reduction in gross cash
following the acquisitions of Precise -- ITC, OpenFive and Banias
as well as the assumption of borrowings. The Group's priorities for
capital management are organic investment in technology development
and maintaining flexibility to reduce gross borrowings in response
to macroeconomic conditions and the requirements of the
business.
29 Retirement benefit schemes
Defined contribution schemes
Group
The Group operates defined contribution retirement benefit
schemes. The pension cost charge for the year represented
contributions payable by the Group to the schemes and amounted to
US$1,300,000 (2021: US$253,000). Contributions totalling US$3,000
(2021: US$2,000) were payable to the schemes at the end of the year
and are included in other creditors.
30 Government assistance
During 2021, the Group received US$55,000 CEWS from the
Government of Canada. This was prior to the Initial Public Offering
when Alphawave IP Inc. was a private Canadian company faced with
uncertainty as to the longer-term impact on the business. Post the
Initial Public Offering, whilst Alphawave IP Inc. is entitled to
COVID-related grants, the Board and management team has elected not
to receive them. No government assistance has been requested nor
taken in the UK since the Company's incorporation and Initial
Public Offering.
In 2022, the Group did not receive any government
assistance.
31 Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Transactions with Directors and key management personnel of the
Group are disclosed in note 8.
During the year Group companies entered into the following
transactions with related parties who are not members of the
Group.
31 December 31 December
2022 2021
US$'000 US$'000
------------------------------------------------------- ----------- -----------
Transactions:
Revenue from companies on which a Director is the
chairman of the board(1,2) 3,549 9,855
Revenue from VeriSilicon 3,270 8,861
Revenue from WiseWave, a joint venture, where there
is common directorship 58,207 29,846
Costs capitalised as intangible assets from a company
on which a Director is a director (1,200) -
------------------------------------------------------- ----------- -----------
63,826 48,562
------------------------------------------------------- ----------- -----------
Balances:
Accounts receivable from a company on which a Director
is the chairman of the board(2) 350 500
Accounts receivable from VeriSilicon 669 2,469
Accounts receivable from WiseWave, a joint venture,
where there is common directorship 3,360 -
Accrued revenue from companies on which a Director
is the chairman of the board(2) 6,750 5,631
Accrued revenue from VeriSilicon - 423
Accrued revenue from WiseWave, a joint venture, where
there is common directorship 20,217 5,803
------------------------------------------------------- ----------- -----------
31,346 14,826
------------------------------------------------------- ----------- -----------
Deferred revenue from a company on which a Director
is the chairman of the board(1) 686 727
Deferred revenue from VeriSilicon - 593
686 1,320
------------------------------------------------------- ----------- -----------
1. US$915,000 of this revenue (2021: US$949,000) and US$686,000
of this deferred revenue (2021: US$677,000) is from Achronix
Semiconductor Corporation, where John Lofton Holt ceased to be
chairman of the board on 8 July 2021.
2. Companies on which a Director is the chairman of the board
are Achronix Semiconductor Corporation, FLC Technology Group and
DreamBig Semiconductor Inc.
Sales to related parties are made at market prices and in the
ordinary course of business. Outstanding balances are unsecured and
settlement occurs in cash. Any estimated credit losses on amounts
owed by related parties would not be material and are therefore not
disclosed. This assessment is undertaken at each key reporting
period through examining the financial position of the related
party and the market in which the related party operates.
In the interests of transparency, we have opted to disclose
VeriSilicon as a related party within this note. However, we have
received advice that VeriSilicon is not a related party as defined
by IAS 24 or Listing Rule 11. All revenue from VeriSilicon and
related balances are in respect of transactions signed with
VeriSilicon prior to the VeriSilicon reseller agreement moving
under WiseWave as master reseller effective November 2021. All
revenue and associated balances in respect of transactions signed
with VeriSilicon since that date are now recognised through the
WiseWave joint venture line.
32 Capital commitments
The Group has contractually committed to investing up to
US$170,000,000 in WiseWave and as at 31 December 2022 has invested
US$31,420,000 (2021: US$22,400,000). WiseWave does not currently
anticipate requiring the maximum committed amount and is likely to
undertake an external financing round in the medium term. Beyond a
potential small internal financing round ahead of any external
capital raise, the Group does not intend to make significant
further capital contributions to WiseWave. The amount of
US$170,000,000 remains a contractually committed amount, but it is
unlikely that the maximum amount of investment will be
required.
33 Business combinations
Acquisition of Precise-ITC, Inc.
On 1 January 2022, we completed the acquisition of 100% of the
equity interests of Precise-ITC, Inc. ('Precise'), a developer of
Ethernet and Optical Transport Network (OTN) communications
controller IP.
Precise, which is based in Ontario, Canada, brings a team of
talented engineers and additional strategic IP to our portfolio. We
have been working with Precise since 2019 and our combined IP
solutions are already integrated in silicon products for several of
our customers. Now, working as one team, we will have an expanded
and vertically integrated portfolio of communications IPs to
service the most advanced global customers in the networking and
data centre markets, including leading semiconductor companies and
hyperscalers.
We acquired Precise for US$8,000,000 on a cash-and debt-free
basis. We paid consideration of US$8,470,000 in cash on completion,
including US$470,000 in respect of Precise's cash less
indebtedness.
Additional consideration of up to US$5,000,000 is payable
contingent on the aggregate value of Precise's IP Core revenue and
bookings exceeding US$10,000,000 during 2022. Using an option
pricing model, we determined that the fair value of the contingent
consideration at the acquisition date was US$740,000 and this is
recorded within trade and other payables in the consolidated
statement of financial position.
Further payments totalling US$11,500,000 may be made to one of
the vendors during the period of up to three years following
completion. Since those further payments are largely conditional on
that individual continuing in the Group's employment, they are
accounted for as employee compensation rather than as consideration
for the purchase of the business.
We recognised goodwill of US$3,097,000 on the acquisition of
Precise that is principally attributable to the benefits expected
to be derived from the combination of our technologies to develop
new IP and increase our penetration of the rapidly growing
networking and data centre markets.
Subsequent to its acquisition, Precise generated revenue of
US$2,251,000 and a profit of US$2,747,000 that are included in the
consolidated statement of comprehensive income.
Precise's actual IP Core revenue and bookings during 2022
significantly exceeded our expectations at the acquisition date. As
a result, the full amount of the contingent consideration, namely
US$5,000,000, is payable to the vendors and recognised as a
liability measured at fair value. We have recognised the excess of
the contingent consideration payable over its fair value at the
acquisition date as an expense of US$4,260,000 within other
expenses in the consolidated statement of comprehensive income.
Acquisition of OpenFive
On 31 August 2022, we completed the acquisition of 100% of the
equity interests in Open-Silicon, Inc. and related assets and
liabilities that together comprised the OpenFive business unit of
SiFive, Inc. and entered into certain IP licensing agreements that
were integral to the business combination.
OpenFive is a leading provider of high-end SoC IP technologies
globally, with a strong focus on the North American market. We
believe that the acquisition of OpenFive has the following key
benefits: it nearly doubles our connectivity and SoC IP portfolio
and will accelerate our progress in providing advanced connectivity
solutions in 5nm, 4nm, 3nm and beyond; it will enable us to offer
leading-edge data centre and networking custom silicon solutions
and will enhance our chiplet design capabilities; it significantly
expands our customer base and total addressable market, including a
new hyperscaler customer in North America, providing a broader
platform from which to execute our sales strategy; and it brings a
team of more than 300 people, largely based in India, that will
considerably enhance our delivery capabilities.
We acquired the OpenFive business unit and the related IP
licences for US$210,000,000 on a cash- and debt-free basis. We paid
consideration of US$203,636,000 in cash on completion, after
deducting US$6,364,000 in respect of OpenFive's estimated cash,
indebtedness and working capital. We expect that there will be an
adjustment to the purchase price based on OpenFive's actual cash,
indebtedness and working capital on completion. Subject to
agreement of the amount with SiFive Inc., we expect that the
purchase price adjustment will be settled during the second half of
2023.
We have completed the purchase price allocation for OpenFive,
except for possible amendment to consideration when the purchase
price adjustment has been determined in line with the acquisition
agreement and possible adjustments to deferred tax assets and
liabilities. Consideration is yet to be confirmed as at the date of
approval of the accounts and is expected to be determined during
2023. On that basis, we have recognised provisional goodwill of
US$182,158,000 on the acquisition of OpenFive that is principally
attributable to the assembled workforce, the benefits expected to
be derived from the combination of our technologies to enhance our
offering of advanced custom silicon solutions and further increases
in our penetration of the rapidly growing networking and data
centre markets.
Regarding deferred tax assets and liabilities, we have evaluated
the costs and benefits of making an election under Section 338 of
the US Internal Revenue Code of 1986, which would limit the
historical US income tax liability that may otherwise be inherited
in a taxable stock acquisition and also change the tax attributes
inherited (including tax losses) and the deferred tax position. On
15 May 2023, we made a Section 338 election and we are currently
awaiting the final calculations from the former owners of OpenFive
to determine the impact of the election and any amounts payable to
the former owners. For the purposes of our annual reporting, we
have recorded a provisional deferred tax liability of US$15.9m,
which will be updated following receipt of the final
calculations.
Subsequent to its acquisition, OpenFive generated revenue of
US$70,827,000 and a loss of US$11,717,000. If we had acquired
OpenFive on 1 January 2022, we estimate that the Group's revenue
for the year would have been US$75,847,000 higher and the Group's
loss for the year would have been US$13,554,000 greater.
Acquisition of Banias Labs
On 12 October 2022, we completed the acquisition of 100% of the
equity interests of Solanium Labs Ltd (Solanium), a leading optical
Digital Signal Processing (DSP) chip developer that trades under
the name Banias Labs.
Banias Labs is based near Tel Aviv, Israel and has a team of
about 50 people, the majority of whom are engaged in research and
development. Alongside the acquisition of Banias Labs, we entered
into a non-binding, multi-year purchasing framework with a leading
North American hyperscaler that proposes a multi-year roadmap for
Alphawave to develop and sell a portfolio of optical products and
DSPs, including coherent DSP technology from Banias Labs, with
sales potentially ramping to over US$300m. We consider that the
acquisition of Banias Labs has the following key benefits: it
brings silicon-proven optical DSP technology, expanding our product
portfolio and strengthening our product roadmap; it will expand
Alphawave's addressable market and deepen our commercial
partnership with a leading North American hyperscaler; and it will
enable us to target the growing opportunity to use coherent optical
technology within data centres and in other shorter reach
applications.
We purchased all of Banias Labs' outstanding issued common and
preferred shares and all outstanding unexercised options over its
common shares for US$240,000,000 on a cash- and debt-free
basis.
We paid US$244,955,000 cash on completion in respect of
consideration of US$213,942,000, deferred cash rights of
US$31,013,000 and US$4,955,000 in respect of Banias Labs' estimated
cash, indebtedness and working capital. We paid US$24,300,000 of
the initial consideration into an escrow fund that is available to
settle any valid claims that we may make in relation to the
representations, warranties and indemnities that were provided to
us by the sellers. We expect that there will be an adjustment to
the purchase price based on Banias Labs' actual cash, indebtedness
and working capital on completion. Subject to agreement with the
vendors, we expect that the purchase price adjustment will be
settled during the second half of 2023.
We funded the acquisition from existing cash balances and the
proceeds of our recently obtained US$210.0m Senior Secured Credit
Facilities, comprising a five-year US$110.0m Revolving Credit
Facility and a five-year US$100.0m Term Loan.
On completion, all outstanding unvested employee options over
Banias Labs' common shares were converted into rights to receive
future cash payments, which are generally subject to the vesting
schedule and other terms (including a service condition) that
governed the options that they replaced. We determined that the
fair value of the deferred cash rights on the acquisition date was
US$31,013,000, of which US$8,804,000 was attributable to employee
service rendered before the acquisition date and is therefore
accounted for as deferred consideration. We will recognise the
balance of the fair value of the deferred cash rights as an
employee compensation expense over their respective vesting
periods.
Based on the vesting schedules of the deferred cash rights, we
expect that the liability for deferred consideration will be
settled over the period to August 2026.
Based on Banias Labs' actual cash, indebtedness and working
capital on completion, we estimate that a purchase price adjustment
of around US$250,000 will be payable to the vendors. Subject to
agreement of the amount with the vendors, we expect that the
purchase price adjustment will be settled during 2023.
We have completed the purchase price allocation, except for
possible amendment to consideration when the purchase price
adjustment has been determined in line with the acquisition
agreement, as noted above. On that basis, we have recognised
provisional goodwill of US$146,585,000 on the acquisition that is
principally attributable to the assembled workforce and the
benefits expected to be derived from the future development of new
connectivity product offerings for the rapidly growing networking
and data centre markets.
Since its key future products are still under development,
Banias Labs does not generate any revenue as yet. Subsequent to its
acquisition, Banias Labs incurred a loss of US$481,000 that is
included in the consolidated statement of comprehensive income. If
we had acquired Banias Labs on 1 January 2022, we estimate that the
Group's profit for the year would have been US$12,388,000
lower.
Assets acquired and liabilities assumed
We have allocated the purchase consideration to the identifiable
assets and liabilities of the businesses acquired at their
respective acquisition dates and goodwill as follows, based on
their fair values:
Banias
OpenFive Labs
Precise-ITC (provisional) (provisional) Total
US$'000 US$'000 US$'000 US$'000
--------------------------------------- ----------- -------------- -------------- ---------
Assets acquired
Cash and cash equivalents 803 14,503 9,131 24,437
Trade and other receivables 269 26,014 1,256 27,539
Inventories - 14,671 - 14,671
Technology/IP 7,800 30,100 83,900 121,800
Customer relationships - 25,700 - 25,700
Other intangibles - 6,573 - 6,573
Intangible assets (subtotal) 7,800 62,373 83,900 154,073
Property, plant and equipment 52 813 1,702 2,567
Other assets - 1,667 1,119 2,786
--------------------------------------- ----------- -------------- -------------- ---------
Total assets acquired 8,924 120,041 97,108 226,073
Liabilities assumed
Trade and other payables (70) (40,924) (2,073) (43,067)
Contract liabilities (1,120) (40,241) - (41,361)
Deferred tax liabilities (1,621) (15,860) (13,613) (31,094)
Other liabilities - (1,538) (5,261) (6,799)
--------------------------------------- ----------- -------------- -------------- ---------
Total liabilities (2,811) (98,563) (20,947) (122,321)
Net identifiable assets acquired 6,113 21,478 76,161 103,752
--------------------------------------- ----------- -------------- -------------- ---------
Goodwill arising on acquisition 3,097 182,158 146,585 331,840
--------------------------------------- ----------- -------------- -------------- ---------
Consideration 9,210 203,636 222,746 435,592
--------------------------------------- ----------- -------------- -------------- ---------
Purchase consideration was as follows:
Cash paid on completion 8,470 203,636 213,942 426,048
Purchase price adjustment - - - -
Deferred consideration - - 8,804 8,804
Contingent consideration 740 - - 740
--------------------------------------- ----------- -------------- -------------- ---------
Consideration 9,210 203,636 222,746 435,592
--------------------------------------- ----------- -------------- -------------- ---------
The Group engaged qualified external experts to support the
identification and measurement of the identifiable assets acquired
and liabilities assumed. The intangible assets acquired that
qualified for recognition separately from goodwill were
technology/IP, customer relationships and third-party IP licences.
The fair values of the acquired technology and IP intangible assets
were determined using the multi-period excess earnings method
(MEEM), the fair value of the customer relationships intangible
asset was determined using the MEEM and the fair value of the
third-party IP licences was determined using the cost savings
approach.
Trade and other receivables are stated at their gross
contractual amounts receivable, which are considered to be
reflective of their fair values. At the acquisition dates,
management expects all of the contractual cash flows from trade and
other receivables to be collected.
None of the goodwill recognised on business combinations
completed during 2022 is deductible for tax purposes.
During 2022, we incurred acquisition-related costs of
US$16,973,000 (2021: US$533,000) (included in other operating
expenses in the consolidated statement of comprehensive
income).
Cash flows in relation to business combinations
During the years ended 31 December 2022 and 2021, the net cash
outflow on the purchase of businesses was as follows:
2022 2021
US$'000 US$'000
---------------------------------------------------- -------- --------
Cash paid on completion 426,048 -
Purchase price adjustment - -
Deferred consideration 8,804 -
---------------------------------------------------- -------- --------
Consideration paid 434,852 -
Cash and cash equivalents acquired (24,437) -
---------------------------------------------------- -------- --------
Cash outflow on purchase of businesses, net of cash
acquired 410,415 -
---------------------------------------------------- -------- --------
34 Notes supporting the consolidated statement of cash flows
Group Group Company Company
31 December 31 December 31 December 31 December
2022 2021 2022 2022
US$'000 US$'000 US$'000 US$'000
------------------------- ------------ ------------ ------------ ------------
Cash at bank and in hand 186,231 500,964 125,729 463,360
------------------------- ------------ ------------ ------------ ------------
There are no other significant amounts of cash and cash
equivalents that are held by the Group that are not available to
the Group.
Movements in the Group's loans and borrowings have been analysed
below.
Non-current Current
loans and loans and
borrowings borrowings Total
US$'000 US$'000 US$'000
--------------------- ----------- ----------- --------
At 1 January 2022 - - -
Financing cash flows 203,750 5,000 208,750
Non-cash flows 1,451 - 1,451
--------------------- ----------- ----------- --------
At 31 December 2022 205,201 5,000 210,201
--------------------- ----------- ----------- --------
Non-current Current
loans and loans and
borrowings borrowings Total
US$'000 US$'000 US$'000
--------------------- ----------- ----------- --------
At 1 January 2021 27 27 54
Financing cash flows (27) (27) (54)
Non-cash flows - - -
--------------------- ----------- ----------- --------
At 31 December 2021 - - -
--------------------- ----------- ----------- --------
35 Events after the reporting period
On 17 April 2023, the Group invested US$2.7m into its joint
venture, WiseWave, as part of the final tranche of a previously
approved investment round. The total amount invested was US$6.4m,
of which Wise Road Capital contributed the balance of US$3.7m.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2022
or 2021 but is derived from those accounts. Statutory accounts for
2021 have been delivered to the registrar of companies, and those
for 2022 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
Appendix
TCFD Compliance Table
Disclosure Response
Governance
----------------------------------------------
Describe the board's oversight of Governance - page 16
climate-related risks and opportunities.
----------------------------------------------
Describe management's role in assessing Governance - page 16
and managing climate-related risks
and opportunities.
----------------------------------------------
Strategy
----------------------------------------------
Describe the climate-related risks See Risks and Opportunities tables
and opportunities the organisation on pages 15-16
has identified over the short, medium,
and long term.
----------------------------------------------
Describe the impact of climate-related Dependency on natural, social and
risks and opportunities on the organisation's human capital - page 16
business, strategy, and financial Strategy - page 17
planning.
----------------------------------------------
Describe the resilience of the organisation's We have not performed a quantitative
strategy, taking into consideration risk assessment or climate-related
different climate-related scenarios, scenario analysis. As a first step,
including a 2 C or lower scenario. in 2023 we will evaluate additional
requirements and associated costs
to assess the resilience of the
organisation under different climate-related
scenarios.
----------------------------------------------
Risk Management
----------------------------------------------
Describe the organisation's processes Risk Management - Page 15
for identifying and assessing climate-related
risks.
----------------------------------------------
Describe the organisation's processes See Risks and Opportunities tables
for managing climate-related risks. on pages 15-16
----------------------------------------------
Describe how processes for identifying, Risk Management - Page 15
assessing, and managing climate-related
risks are integrated into the organisation's
overall risk management.
----------------------------------------------
Metrics and Targets
----------------------------------------------
Disclose the metrics used by the Metrics and Targets - Page 14-15
organisation to assess climate-related
risks and opportunities in line
with its strategy and risk management
process.
----------------------------------------------
Disclose Scope 1, Scope 2, and if Table - Page 14-15
appropriate, Scope 3 greenhouse
gas (GHG) emissions, and the related
risks.
----------------------------------------------
Describe the targets used by the Metrics and Targets - Page 14-15
organisation to manage climate-related
risks and opportunities and performance
against targets.
----------------------------------------------
[1] Net of cash acquired and including approximately US$28.2m of
deferred compensation payments related to acquisitions which are
expected to be settled over time until August 2026.
[2] After consolidation adjustments at Group level.
[3] See note 4 Alternative Performance Measures (APMs). Adjusted
EBITDA and Adjusted Profit after Tax exclude IPO-related
non-recurring costs, foreign exchange adjustments, share-based
payments, M&A transaction costs and one-time fees associated
with WiseWave.
[4] Bookings are a non-IFRS measure representing legally binding
and largely non-cancellable commitments by customers to license our
technology. Bookings comprise licence fees, non-recurring
engineering, support and, in some instances, our estimates of
potential future royalties.
[5] In FY 2021 there were no silicon bookings. The amount
reflects only those instances where potential future royalties
could be estimated based on committed prepayments or customer
volume estimates.
[6] Both FSA (Flexible Spending Account) drawdowns and China
re-sale licences convert previously announced contractual
commitments included within bookings reported in prior periods to
new product design wins which will be recognised as revenue over
time.
[7] After consolidation adjustments at Group level.
[8] For further details see note 5 Revenue.
[9] Net of cash acquired and including approximately US$28.2m of
deferred compensation payments related to acquisitions which are
expected to be settled over time until August 2026.
[10] Synergy Research Group (srgresearch.com)
https://www.srgresearch.com/articles/q3-cloud-spending-up-over-11-billion-from-2021-despite-major-headwinds-google-increases-its-market-share.
[11] The Data Center Journey, From Central Utility To Center Of
The Universe (semiengineering.com). Source Statista
https://semiengineering.com/the-datacenter-journey-from-central-utility-to-center-of-the-universe/.
[12] Semico Research Corporation, December 2022, IPNest and
LightCounting
[13] After consolidation adjustments at Group level.
[14] Net of cash acquired and including approximately US$28.2m
of deferred compensation payments related to acquisitions which are
expected to be settled over time until August 2026.
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