TIDMIQE 
 

IQE plc

("IQE" or the "Group")

H1 2021 INTERIM RESULTS

Cardiff, UK

7 September 2021

Sustained performance year-on-year in line with expectations

Leadership update

IQE plc (AIM: IQE), the leading supplier of compound semiconductor wafer products and advanced material solutions to the global semiconductor industry, announces its results for the six months ended 30 June 2021 and provides an update on the leadership transition of the business.

H1 2021 Financials

 
                           H1 2021       H1 2020  Change   Change at constant 
                            GBP'm*        GBP'm*    (%)       currency (%) 
 
Revenue                       79.5          89.9  (11.5)                 (2.5) 
 
Adjusted EBITDA**             11.6          16.3  (28.9)                   0.1 
 
Operating loss               (1.9)         (5.0)    62.0 
 
Adjusted operating 
 (loss) / profit             (0.9)           4.3 
 
Reported loss after 
 tax                         (2.7)         (5.0) 
 
Diluted EPS                (0.34p)       (0.66p) 
 
Adjusted diluted EPS       (0.21p)         0.28p 
 
Cash generated from 
 operations                   10.4          15.1  (31.1) 
 
Adjusted cash from 
 operations                    9.1          16.2  (44.1) 
 
Capital Investment 
 (PP&E)                        6.1           1.1 
 
Net funds / 
 (debt***)                     0.9         (7.4) 
 

* All figures GBP'm excluding diluted and adjusted diluted EPS.

** Adjusted Measures: Alternative performance measures are disclosed separately after a number of adjusted non-cash, one-off or non-operational items where it is deemed necessary by the Directors to do so to provide further understanding of the financial performance of the Group. Adjusted items are material items of income or expense that have been shown separately due to the significance of their nature or amount as detailed in note 8.

*** Net debt excludes IFRS16 lease liabilities.

The following highlights of the first half results is based on these adjusted profit measures, unless otherwise stated.

Financial Highlights

   -- Revenue of GBP79.5m (H1 2020: GBP89.9m) representing a -2.5% year-on-year 
      performance at constant currency against a record H1 2020 in line with 
      previous guidance 
 
   -- Significant FX headwind of c.GBP8.1m affecting reported revenue in GBP, 
      with the majority of revenues being earned in USD 
 
   -- Adjusted EBITDA of GBP11.6m (H1 2020: GBP16.3m) representing an in line 
      year-on-year result on a constant currency basis in line with previous 
      guidance 
 
   -- Adjusted cash inflow from operations of GBP9.1m (H1 2020: GBP16.2m) 
      representing 78% adjusted EBITDA conversion 
 
   -- Strong liquidity maintaining a net funds position of GBP0.9m (FY 2020: 
      GBP1.9m, H1 2020: (GBP7.4m) net debt) with cash generated from operations 
      used to fund the Group's capex and technology development investments in 
      H1 2021 
 
   -- Reported operating loss of GBP(1.9)m (H1 2020: GBP(5.0)m) representing a 
      GBP2.2m profit on a constant currency basis 

Operational Highlights

   -- Sustained Wireless Handset related growth 
 
          -- 30% year-on-year growth in GaAs revenues in H1 2021 due to strong 
             demand for epiwafers used in power amplifiers for 5G handsets and 
             WiFi 6/6E routers 
 
          -- Orders placed for three new Aixtron G4 reactors and three 
             refurbished Aixtron G3 reactors, with delivery of tools expected 
             in H2 2021 to increase capacity at IQE Taiwan by over 20%, 
             underpinning further anticipated growth in 2022 and beyond 
 
   -- Diversification of 5G Infrastructure and other opportunities 
 
          -- Overall Wireless business growth YoY of GBP0.3m with 30% increase 
             in GaAs revenues YoY (constant currency) 
 
          -- 53% YoY reduction in revenues for GaN on SiC for 5G infrastructure 
             reflecting global 5G deployment cycles, in particular lower 
             numbers of mMIMO deployments in Asia compared to FY 2020 as 
             previously highlighted 
 
          -- Increasing interest from several chip foundries in GaN on Si 
             technologies, with joint development programmes progressing in H2 
             2021 to develop a diversified and cost-effective offering to the 
             RF infrastructure market, with potential longer-term applicability 
             to power electronics and 5G mmWave 
 
          -- Multi-year strategic partnership signed post half year end with a 
             major semiconductor foundry to develop epiwafers for 5G small 
             cells 
 
   -- Strong Photonics technology leadership 
 
          -- Photonics business decrease of -7.6% at constant currency 
 
          -- Maintenance of strong market share in VCSELs with volume gains in 
             world-facing LiDAR applications, offset by reduction in VCSEL 
             revenues of 26% YoY due to smaller chip sizes required for facial 
             recognition technology, in line with management expectations 
 
          -- Strong development progress on long wavelength VCSELs for below 
             screen applications and advanced sensing for healthcare 
             applications 
 
          -- Continued strong demand for advanced sensing for defence and 
             security applications 
 
   -- Continued technological and operational progress 
 
          -- Expansion of VCSEL portfolio with turnkey IQVCSEL(TM) product line, 
             a value-add solution that accelerates customers' ability to 
             introduce new products, thereby expanding the VCSEL market 
 
          -- Achievement of key power and reliability milestones for its 
             IQDN-VCSEL(TM) technology for advanced sensing applications at 
             longer wavelengths (1100-1600 nm) on 150 mm GaAs substrates 
 
          -- Taiwanese Court determination of the acquisition of minority 
             interests in IQE Taiwan received on 18 August 2021. The matter 
             will be finalised upon resolution of an appeal by a small number 
             of shareholders 

Board Updates

   -- Process for the recruitment of a new CEO is nearing completion with a 
      preferred candidate identified, who possesses relevant international 
      semiconductor market experience. Discussions are ongoing with the aim of 
      concluding the appointment process 
 
   -- Phil Smith to be appointed interim Executive Chairman effective as of 
      today, to prepare the group for the appointment of a new CEO. As 
      announced in November 2020, Drew Nelson will transition to Non-Executive 
      Director with the title of President 
 
   -- Appointment of Victoria Hull as Non-Executive Director and incoming 
      Remuneration Committee Chair, and appointee to the Audit & Risk and 
      Nominations Committee 
 
   -- Sir David Grant will retire from the Board and his position as 
      Remuneration Committee Chair on 18 September 

Dr Drew Nelson, outgoing Chief Executive Officer of IQE, said:

"Today's results reflect the resilience of our business and highlight the ongoing commitment and hard work of our people who have, despite additional headwinds, largely sustained the record levels of performance at IQE that we reported a year ago.

In November 2020 the Company announced the search for my successor and my intention to continue in an ambassadorial and advisory role at IQE. As I now formally step aside as CEO, I am extremely proud of everything we have achieved at IQE to date and the critical role the business plays within the broader global industry, and Compound Semiconductor Cluster in South Wales. I look forward to supporting the Company in the next stage of IQE's development in my role as President and Non-Executive Board member, while also helping drive the development of the Compound Semiconductor Cluster."

Phil Smith, Executive Chairman of IQE, said:

"Thanks to Drew Nelson's vision and drive, IQE has established a solid platform with strong market positions and global leadership in compound semiconductors. I share his enthusiasm for the future opportunities that lay ahead for IQE and I want to thank him for his incredible contribution to the business. I would also like to thank Sir David Grant for his contributions to IQE since 2012.

As part of my expanded role, I will focus on the execution of IQE's strategy and preparing the business for the arrival of the incoming CEO."

Current trading and FY 2021 outlook

The market for GaAs power amplifiers is expected to continue to be strong through H2 2021 and grow further in FY 2022, driven by continued 5G penetration of the smartphone handset market and by WiFi 6 & 6E.

The market for GaN for 5G infrastructure has been weak in the first half of the year due to the nature of global 5G deployments. This is expected to continue in Q3. The Group sees potential opportunities for higher volumes in Q4 ahead of an anticipated return to growth in FY 2022.

In Photonics, production of VCSELs and advanced sensing for defence and security markets is expected to continue at relatively stable levels, with possible volume opportunities in VCSEL in Q4 related to the success of handset launches.

A significant foreign exchange headwind is being experienced in FY 2021 on a reported basis, as the Group's revenues are predominantly earned in USD but are reported in GBP.

Full year revenues are expected to be similar to the prior year on a constant currency basis. At this level, adjusted EBITDA is also expected to be similar on a constant currency basis.

The Group reiterates guidance for capital expenditure on PP&E for FY 2021 in the range of GBP20m to GBP30m as investments are made in tool capacity to underpin anticipated growth in both Wireless and Photonics products in FY 2022 and beyond. A total of nine new, refurbished or re-commissioned tools will be coming online at the end of FY 2021/beginning of FY 2022.

Capitalisation of development costs is expected to be in the range of GBP5m to GBP8m for the full year as the Group continues to invest in its IT transformation and in future products to meet anticipated growing demand for compound semiconductors driven by the macro trends of 5G and connected devices.

Contacts:

IQE plc

+44 (0) 29 2083 9400

Phil Smith

Tim Pullen

Amy Barlow

Peel Hunt LLP (Nomad and Joint Broker)

+44 (0) 20 7418 8900

Edward Knight

Paul Gillam

Nick Prowting

Citigroup Global Markets Limited (Joint Broker)

+44 (0) 20 7986 4000

Christopher Wren

Peter Catterall

Headland Consultancy (Financial PR)

+ 44 (0) 20 38054822

Andy Rivett-Carnac: +44 (0) 7968 997 365

Chloe Francklin: +44 (0)78 3497 4624

ABOUT IQE

http://iqep.com

IQE is the leading global supplier of advanced compound semiconductor wafers and materials solutions that enable a diverse range of applications across:

   -- handset devices 
 
   -- global telecoms infrastructure 
 
   -- connected devices 
 
   -- 3D Sensing 

As a scaled global epitaxy wafer manufacturer, IQE is uniquely positioned in this market which has high barriers to entry. IQE supplies the whole market and is agnostic to the winners and losers at chip and OEM level. By leveraging the Group's intellectual property portfolio including know-how and patents, it produces epitaxy wafers of superior quality, yield and unit economics.

IQE is headquartered in Cardiff UK, with c. 670 employees across nine manufacturing locations in the UK, US, Taiwan and Singapore, and is listed on the AIM Stock Exchange in London.

Financial Review

 
 
 
 Consolidated Income Statement                              6 months to   6 months to   12 months to 
                                                           30 Jun 2021   30 Jun 2020    31 Dec 2020 
(All figures GBP'000s)                               Note   Unaudited     Unaudited       Audited 
---------------------------------------------------  ----  ------------  ------------  ------------- 
Revenue                                                          79,544        89,862        178,016 
Cost of sales                                                  (67,336)      (70,521)      (144,866) 
---------------------------------------------------  ----  ------------  ------------  ------------- 
Gross profit                                                     12,208        19,341         33,150 
Selling, general and administrative expenses                   (14,006)      (24,260)       (34,697) 
Impairment loss on financial assets                                   -             -        (3,788) 
Profit on disposal of property, plant and equipment                   -             -          (182) 
Other gains / (losses)                                  4         (136)          (85)              - 
Operating loss                                                  (1,934)       (5,004)        (5,517) 
Finance costs                                                   (1,067)       (1,156)        (2,165) 
Reversal of losses of joint ventures accounted for 
 using the equity method                                              -             -          3,788 
Adjusted (loss) / profit before income tax                      (1,933)         3,186          3,221 
Adjustments                                             8       (1,068)       (9,346)        (7,115) 
---------------------------------------------------  ----  ------------  ------------  ------------- 
Loss before income tax                                          (3,001)       (6,160)        (3,894) 
Taxation                                                            272         1,189          1,001 
---------------------------------------------------  ----  ------------  ------------  ------------- 
Loss for the period                                             (2,729)       (4,971)        (2,893) 
---------------------------------------------------------  ------------  ------------  ------------- 
Loss attributable to: 
Equity shareholders                                             (2,729)       (5,269)        (3,271) 
Non-controlling interests                                             -           298            378 
---------------------------------------------------------  ------------  ------------  ------------- 
                                                                (2,729)       (4,971)        (2,893) 
---------------------------------------------------------  ------------  ------------  ------------- 
 
Loss per share attributable to owners of the parent 
 during the period 
Basic loss per share 10                                         (0.34p)       (0.66p)        (0.41p) 
Diluted loss per share 10                                       (0.34p)       (0.66p)        (0.41p) 
---------------------------------------------------------  ------------  ------------  ------------- 
 
 
 

Adjusted basic and diluted earnings per share are presented in Note 10.

All items included in the loss for the period relate to continuing operations.

 
 
 
 Consolidated statement of comprehensive income         6 months to   6 months to   12 months to 
                                                       30 Jun 2021   30 Jun 2020    31 Dec 2020 
(All figures GBP'000s)                                  Unaudited     Unaudited       Audited 
-----------------------------------------------------  ------------  ------------  ------------- 
Loss for the period                                         (2,729)       (4,971)        (2,893) 
Currency translation differences on foreign currency 
 net investments*                                           (1,057)         8,424        (6,104) 
-----------------------------------------------------  ------------  ------------  ------------- 
Total comprehensive (expense) / income for the period       (3,786)         3,453        (8,997) 
-----------------------------------------------------  ------------  ------------  ------------- 
Total comprehensive income / (expense) attributable 
 to: 
Equity shareholders                                         (3,786)         2,824        (9,482) 
Non-controlling interest                                          -           629            485 
-----------------------------------------------------  ------------  ------------  ------------- 
                                                            (3,786)         3,453        (8,997) 
-----------------------------------------------------  ------------  ------------  ------------- 
 

* Balance might subsequently be reclassified to the income statement when it becomes realised.

 
 
 Consolidated Balance Sheet                                  As At      As At       As At 
                                                            30 Jun     30 Jun      31 Dec 
                                                             2021       2020        2020 
(All figures GBP'000s)                               Note  Unaudited  Unaudited     Audited 
---------------------------------------------------  ----  ---------  ---------  ---------- 
 
Non-current assets 
Intangible assets                                            102,461    114,605     105,772 
Property, plant and equipment                                125,088    135,159     126,229 
Right of use assets                                           42,539     38,678      37,339 
Deferred tax assets                                            8,526      7,955       7,821 
Financial assets                                                   -          -           - 
---------------------------------------------------  ----  ---------  ---------  ---------- 
Total non-current assets                                     278,614    296,397     277,161 
---------------------------------------------------  ----  ---------  ---------  ---------- 
 
Current assets 
Inventories                                                   29,247     32,371      30,887 
Trade and other receivables                                   39,459     42,546      38,575 
Cash and cash equivalents                              12     20,556     17,385      24,663 
---------------------------------------------------  ----  ---------  ---------  ---------- 
Total current assets                                          89,262     92,302      94,125 
---------------------------------------------------  ----  ---------  ---------  ---------- 
Total assets                                                 367,876    388,699     371,286 
---------------------------------------------------  ----  ---------  ---------  ---------- 
 
Current liabilities 
Trade and other payables                                    (32,764)   (36,184)    (35,605) 
Current tax liabilities                                      (1,221)    (1,430)     (1,426) 
Bank borrowings                                              (6,201)    (5,135)     (6,201) 
Lease liabilities                                      12    (4,394)    (4,167)     (4,798) 
Provisions for other liabilities and charges                 (2,430)      (354)       (515) 
Total current liabilities                                   (47,010)   (47,270)    (48,545) 
---------------------------------------------------  ----  ---------  ---------  ---------- 
 
Non-current liabilities 
Bank borrowings                                        12   (13,466)   (19,632)    (16,539) 
Lease liabilities                                      12   (48,245)   (43,913)    (42,226) 
Provisions for other liabilities and charges                 (1,303)    (1,486)     (1,487) 
Deferred tax liabilities                                     (1,981)    (2,203)     (2,054) 
---------------------------------------------------  ----  ---------  ---------  ---------- 
Total non-current liabilities                               (64,995)   (67,234)    (62,306) 
---------------------------------------------------  ----  ---------  ---------  ---------- 
Total liabilities                                          (112,005)  (114,504)   (110,851) 
---------------------------------------------------  ----  ---------  ---------  ---------- 
Net assets                                                   255,871    274,195     260,435 
---------------------------------------------------  ----  ---------  ---------  ---------- 
 
 Equity attributable to shareholders of the parent 
Share capital                                          14      8,013      7,968       8,004 
Share premium                                                154,375    152,560     154,185 
Retained earnings                                             57,731     58,557      62,089 
Exchange rate reserve                                         20,234     35,595      21,291 
Other reserves                                                15,518     15,036      14,866 
---------------------------------------------------  ----  ---------  ---------  ---------- 
                                                             255,871    269,716     260,435 
Non-controlling Interest                                           -      4,479           - 
---------------------------------------------------  ----  ---------  ---------  ---------- 
Total equity                                                 255,871    274,195     260,435 
---------------------------------------------------  ----  ---------  ---------  ---------- 
 

Consolidated Statement of Changes in Equity

 
 
                                                      Exchange 
Unaudited                  Share    Share   Retained    rate     Other    Non-controlling   Total 
 (All figures GBP'000s)   capital  premium  earnings  reserve   reserves     interests     equity 
 
At 1 January 2021           8,004  154,185    62,089    21,291    14,866                -  260,435 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
 
(Loss) / Profit for the 
 period                         -        -   (2,729)         -         -                -  (2,729) 
Other comprehensive 
 expense for the year           -        -         -   (1,057)         -                -  (1,057) 
Total comprehensive 
 (expense) / income             -        -   (2,729)   (1,057)         -                -  (3,786) 
 
Share based payments            -        -         -         -       754                -      754 
Tax relating to share 
 options                        -        -         -         -     (102)                -    (102) 
Proceeds from shares 
 issued                         9      190         -         -         -                -      199 
Acquisition of 
 non-controlling 
 interest                       -        -   (1,629)         -         -                -  (1,629) 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
Total transactions with 
 owners                         9      190   (1,629)         -       652                -    (778) 
 
At 30 June 2021             8,013  154,375    57,731    20,234    15,518                -  255,871 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
 
                                                      Exchange 
Unaudited                   Share    Share  Retained      rate     Other  Non-controlling    Total 
 (All figures GBP'000s)   capital  premium  earnings   reserve  reserves        interests   equity 
 
At 1 January 2020           7,961  152,385    63,826    27,502    14,919            3,850  270,443 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
 
(Loss) / Profit for the 
 period                         -        -   (5,269)         -         -              298  (4,971) 
Other comprehensive 
 expense for the year           -        -         -     8,093         -              331    8,424 
Total comprehensive 
 (expense) / income             -        -   (5,269)     8,093         -              629    3,453 
 
Share based payments            -        -         -         -       225                -      225 
Tax relating to share 
 options                        -        -         -         -         5                -        5 
Proceeds from shares 
 issued                         7      175         -         -     (113)                -       69 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
Total transactions with 
 owners                         7      175         -         -       117                -      299 
 
At 30 June 2020             7,968  152,560    58,557    35,595    15,036            4,479  274,195 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
 
 
 
                                                      Exchange 
Audited                    Share    Share   Retained    rate     Other    Non-controlling   Total 
 (All figures GBP'000s)   capital  premium  earnings  reserve   reserves     interests     equity 
 
At 1 January 2020           7,961  152,385    63,826    27,502    14,919            3,850  270,443 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
 
 
(Loss) / Profit for the 
 year                           -        -   (3,271)         -         -              378  (2,893) 
Other comprehensive 
 income for the year            -        -         -   (6,211)         -              107  (6,104) 
Total comprehensive 
 income                         -        -   (3,271)   (6,211)         -              485  (8,997) 
 
 
Share based payments            -        -         -         -        55                -       55 
Tax relating to share 
 options                        -        -         -         -        57                -       57 
Proceeds from shares 
 issued                        17      388         -         -     (165)                -      240 
Acquisition of 
 non-controlling 
 interest                      26    1,412     1,534         -         -          (4,335)  (1,363) 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
Total transactions with 
 owners                        43    1,800     1,534         -      (53)          (4,335)  (1,011) 
 
At 31 December 2020         8,004  154,185    62,089    21,291    14,866                -  260,435 
------------------------  -------  -------  --------  --------  --------  ---------------  ------- 
 
 
 
 
 Consolidated Cash Flow Statement                       6 months to   6 months to   12 months to 
                                                       30 Jun 2021   30 Jun 2020    31 Dec 2020 
(All figures GBP'000s)                           Note   Unaudited     Unaudited       Audited 
----------------------------------------  -----------  ------------  ------------  ------------- 
 
Cash flows from operating activities 
-----------------------------------------  ----------  ------------  ------------  ------------- 
Adjusted cash inflow from operations                          9,077        16,229         36,324 
Cash impact of adjustments                          8         1,277       (1,144)          (867) 
-----------------------------------------  ----------  ------------  ------------  ------------- 
Cash generated from operations                     11        10,354        15,085         35,457 
Net interest paid                                             (459)         (247)        (1,142) 
Income tax paid                                               (842)         (629)          (993) 
-----------------------------------------  ----------  ------------  ------------  ------------- 
Net cash generated from operating activities                  9,053        14,209         33,322 
-----------------------------------------------------  ------------  ------------  ------------- 
 
Cash flows from investing activities 
Purchase of property, plant and equipment                   (6,138)       (1,129)        (4,993) 
Purchase of intangible assets                                 (147)         (386)          (731) 
Capitalised development expenditure                         (1,846)       (2,557)        (4,678) 
Acquisition of minority interest                                  -             -        (1,363) 
-----------------------------------------  ----------  ------------  ------------  ------------- 
Net cash used in investing activities                       (8,131)       (4,072)       (11,765) 
-----------------------------------------  ----------  ------------  ------------  ------------- 
 
Cash flows from financing activities 
Proceeds from issuance of ordinary shares                       208            69            240 
Repayment of borrowings                                     (3,073)       (5,000)        (7,030) 
Proceeds from borrowings                                          -         5,000          5,000 
Payment of lease liabilities                                (1,973)       (1,869)        (3,764) 
-----------------------------------------  ----------  ------------  ------------  ------------- 
Net cash (used) / generated from financing activities       (4,838)       (1,800)        (5,554) 
-----------------------------------------------------  ------------  ------------  ------------- 
Net (decrease) / increase in cash and cash 
 equivalents                                                (3,916)         8,337         16,003 
Cash and cash equivalents at the beginning of the 
 period                                                      24,663         8,800          8,800 
Exchange (losses) / gains on cash and 
 cash equivalents                                             (191)           248          (140) 
-----------------------------------------  ----------  ------------  ------------  ------------- 
Cash and cash equivalents at the end of 
 the period                                        12        20,556        17,385         24,663 
-----------------------------------------  ----------  ------------  ------------  ------------- 
 
 
   1.   REPORTING ENTITY 

IQE plc is a public limited company incorporated in the United Kingdom under the Companies Act 2006. The Company is domiciled in the United Kingdom and is quoted on the Alternative Investment Market (AIM).

These condensed consolidated interim financial statements ('interim financial statements') as at and for the six months ended 30 June 2021 comprise the Company and its Subsidiaries (together referred to as 'the Group'). The principal activities of the Group are the development, manufacture and sale of advanced semiconductor materials.

   2.   BASIS OF PREPARATION 

These interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2020 which were approved by the Board of Directors on 25 March 2021 and have been delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The interim financial statements do not include all of the information required for a complete set of IFRS financial statements and do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements.

Comparative information in the interim financial statements as at and for the year ended 31 December 2020 has been taken from the published audited financial statements as at and for the year ended 31 December 2020. All other periods presented are unaudited.

The Company's auditor in accordance with ISRE 2410 has reviewed the financial information contained in these interim financial statements. This review does not constitute an audit.

The Board of Directors and the Audit Committee approved the interim financial statements on 7 September 2021.

   3.   GOING CONCERN 

The Group made a loss of GBP2.7m (H1 2020: GBP5.0m, FY20: GBP2.9m) and used GBP3.9m of cash and cash equivalents (H1 2020: GBP8.3m generated, FY20: GBP16.0m generated) resulting in a net funds position (excluding lease liabilities) of GBP0.9m (H1 2020: GBP2.2m net debt, FY20: GBP1.9m net funds) as at 30 June 2020.

The following matters have been considered by the directors in determining the appropriateness of the going concern basis of preparation in the financial statements:

   -- The Group's operations are geographically diversified. Manufacturing 
      operations are located at ten different sites across three continents, 
      significantly lessening the impact of potential disruption at any single 
      site as a result of the ongoing Coronavirus pandemic. All manufacturing 
      sites continue to remain operational and production has not been affected 
      by any disruption at any of the Group's global sites. 
 
   -- The Group dual or multi-sources key raw materials (substrates, gases, 
      spares and consumables) wherever possible, from a broad range of global 
      suppliers, reducing the likelihood of potential disruption to production 
      from any single supplier. The Group continues to work closely with 
      suppliers and customers to manage inventory levels in order to create 
      supply chain resilience against potential disruption. All manufacturing 
      sites continue to remain operational and production has not been affected 
      by any supply chain disruption. 
 
   -- The Group's trading has remained resilient throughout the half year ended 
      30 June 2021 with revenue of GBP79.5m (H1 2020: GBP89.9m, FY20: 
      GBP178.0m) and an adjusted loss before tax of GBP1.9m (H1 2020: GBP3.2m 
      profit, FY20: GBP3.2m profit) which is broadly consistent with 
      performance for the half year ended 30 June 2020 on a constant currency 
      basis. 
 
   -- The Group continues to maintain a net funds (excluding lease liabilities) 
      position of GBP0.9m (H1 2020: GBP7.4m net debt, FY20: GBP1.9m funds) with 
      cash generated from operations funding the Group's investment activities 
      in the half year ended 30 June 2021. Net funds (excluding lease 
      liabilities) consists of GBP20.6m (H1 2020: GBP17.4m, FY20: GBP24.7m) of 
      cash net of bank loans of GBP19.7m (H1 2020: GBP24.8m FY20: GBP22.7m) 
      repayable over a period to 29 August 2024. 
 
   -- On 24 January 2019, the Group agreed a new GBP25.2m ($35,000,000) 
      three-year multi-currency revolving credit facility from HSBC Bank plc. 
      The Group has complied with all covenants associated with the facility. 
 
   -- On 29 August 2019, the Group agreed a new GBP30,000,000 five-year Asset 
      Finance Loan facility from HSBC Bank plc of which GBP25,000,000 has been 
      drawn. The Group has complied with all covenants associated with the 
      facility. 
 
   -- On 10 December 2020, the Group agreed the extension of the relaxation of 
      certain banking covenants applicable at 31 December 2020 and 30 June 2021 
      to include 31 December 2021 as an on-going precautionary measure designed 
      to increase covenant headroom and availability of cash funding under the 
      terms of the Group's committed bank facilities. 
 
   -- The Group generated cash from operating activities of GBP9.1m (H1 2020: 
      GBP14.2m, FY20: GBP33.2m) and its financial forecasts and projections for 
      the period up to and including 31 December 2022 show that the Group is 
      forecast to continue to comply with its banking covenants and has 
      adequate cash resources to continue operating for the foreseeable future. 
 
   -- The Group's trading has remained robust across each of its primary 
      business segments. Wireless and Photonics revenue drivers, which include 
      demand for GaAs wafers for 5G smartphone power amplifiers, GaN on SiC 
      wafers for 5G infrastructure and advanced RF applications, VCSEL wafers 
      for 3D sensing applications and GaSb wafers for infrared applications, 
      continue to remain strong with positive momentum continuing to build 
      across both the Wireless and Photonics business units. 
 
   -- The Group's severe but plausible downside financial forecasts have been 
      prepared with significant reductions to future forecast revenues, 
      designed to reflect severe downside scenarios associated with demand 
      risks for the period to 31 December 2022. The severe but plausible 
      downside scenario, applied to the Group's financial forecasts, which take 
      account of current trading and customer demand, assumes a 15% reduction 
      in 2021 revenue and a 31% reduction in 2022 revenue partially offset by 
      mitigations within the control of the company, including deferred 
      investment in employee related costs and certain capital projects across 
      the forecast period. The severe but plausible downside scenario 
      illustrates that the Group is forecast to continue to comply with its 
      banking covenants but would require either the extension, or refinancing 
      of its current revolving credit facility from HSBC Bank plc on expiry in 
      January 2022. The severe but plausible downside scenario illustrates that 
      a facility of GBP11.0m, significantly below the Group's current 
      committed facility of GBP25.7m could be required in 2022. The Group has a 
      long-standing and trusted relationship with its bankers, HSBC Bank plc, 
      who remain supportive and who have, at the date of this report, extended 
      formal credit approved heads of terms for a one-year extension of the 
      Group's GBP25.7m ($35,000,000) revolving credit facility until January 
      2023. The credit approved heads of terms include banking covenants 
      consistent with the covenant arrangements applicable until expiry of the 
      existing facility. On this basis, the directors believe that the group 
      has, or will have access, to adequate cash resources to continue 
      operating for the foreseeable future even in a severe but plausible 
      downside scenario. 

The Group meets its day-to-day working capital and other cash requirements through its bank facilities and available cash. The Group's cash flow forecasts and projections, in conjunction with the level of assessed covenant headroom on the Group's committed bank facilities show that the Group has adequate cash resources to continue operating and to meet its liabilities as they fall due for the assessed period to 31 December 2022, such that the directors consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial statements.

   4.   USE OF JUDGEMENTS AND ESTIMATES 

In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements except as follows:

   -- Measurement of fair values associated with outstanding derivative forward 
      currency contracts 

The impact of Coronavirus in the six-month period ended 30 June 2021 has not resulted in any indicators impairment or had a meaningful impact on significant judgements or the level of estimation uncertainty associated with the application of the Group's accounting policies. Coronavirus has had no material adverse impact on the Group's business operations with production continuing uninterrupted at all global sites.

Derivative Forward Currency Contracts

At 30 June 2021 the Group had outstanding derivative forward currency contracts with a nominal value of $13.1m (H1 2020: $16.5m, FY20: $nil) for the sale of US$ in exchange for GBPGBP.

The Group's accounting policies require that derivative forward currency contracts are measured at fair value. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follow:

   -- Level 1: Quoted prices (unadjusted) in active markets for identical 
      assets or liabilities 
 
   -- Level 2: Inputs other than quoted prices included in Level 1 that are 
      observable for the asset or liability, either directly (i.e as prices) or 
      indirectly (i.e derived from prices) 
 
   -- Level 3: Inputs for the asset or liability that are not based on 
      observable market data (unobservable inputs) 

Derivative forward currency contracts have been categorised as Level 1 in the fair value hierarchy. The fair value of the derivative instrument has been assessed using quoted prices in active markets for identical assets or liabilities using independent mark to market valuations provided by an appropriately regulated financial institution.

The fair value liability of GBP0.1m (H1 2020: GBP0.1m liability, FY20: GBPnil) has been included in the balance sheet in 'trade and other payables" with the fair value loss on the derivative instruments included in 'Other gains / (losses)' in the consolidated income statement.

   5.   SIGNIFICANT ACCOUNTING POLICIES 

The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2020. A number of new standards are effective from 1 January 2021 but they do not have a material effect on the Group's financial statements.

Recent accounting developments and the policy for recognising and measuring income taxes in the interim period are described below.

   5.1         Recent accounting developments 

In preparing the interim financial statements, the Group has adopted the following Standards, amendments and interpretations, which are effective for 2021 and will be adopted in the financial statements for the year ended 31 December 2021:

   -- Amendments to IFRS 9 'Financial Instruments', IAS 39 'Financial 
      Instruments: Recognition and Measurement', IFRS 7 'Financial Instruments: 
      Disclosures, IFRS 4 'Insurance Contracts', IFRS 16 'Leases' related to 
      interest rate benchmark reform (phase two) and the issues that arise from 
      the implementation of the reforms, including the replacement of one 
      benchmark with an alternative one. 
 
   -- Amendment to IFRS 16 'Leases' which provides an optional practical 
      expedient for lessees from assessing whether a rent concession related to 
      COVID-19 is a lease modification. 
 
   -- Amendment IFRS 17 and IFRS 4 'Insurance contracts' which defer the date 
      of application of IFRs 17 until 1 January 2023 and change the fixed date 
      of the temporary exemption in IFRS 4 from applying IFRS 9 'Financial 
      Instruments', until 1 January 2023. 

The adoption of these standards and amendments has not had a material impact on the interim financial statements.

   5.2        Income tax expense 

Income tax expense is recognised at an amount determined by multiplying the profit / (loss) before tax for the interim reporting period by management's best estimate of the weighted-average annual income tax rate expected for the full financial year, adjusted for the tax effect of certain items recognised in full in the interim period. As such, the effective tax rate in the interim financial statements may differ from management's estimate of the effective tax rate for the annual financial statements.

   6.   PRINCIPAL RISKS AND UNCERTAINTIES 

The principal risks and uncertainties affecting the Group are set out in the Strategic Report in the 2020 Annual report and financial statements and remain unchanged at 30 June 2021.

The principal risks and uncertainties include health, safety and environment, loss of key personnel, cybersecurity, infringement or loss of intellectual property, legal and regulatory compliance, changes in international export control laws, competition and/or erosion of market opportunity, customer concentration, insufficient cash or funding to underpin investment opportunities and the failure of new products or technology to deliver expected levels of revenue and profitability.

Three key risks to IQE were identified as possible impacts from Coronavirus, being adverse effects to the health and safety of employees, business disruption and reduced product demand. These risks were, and continue to be, closely monitored by a dedicated business continuity committee and the Group has seen no material impact on business operations due to the pandemic with continuous production maintained at all of the Group's global sites throughout H1 2021. While the full effects of the Coronavirus pandemic on global economic output in 2020 and beyond are still uncertain, the Group forecasts continued underlying market demand for IQE's products.

   7.   SEGMENTAL INFORMATION 
 
 
                                                     6 Months to 30 June 2021   6 Months to 30 June 2020   12 Months to 31 Dec 2020 
                                                            Unaudited                  Unaudited                   Audited 
 Revenue                                                     GBP'000                    GBP'000                    GBP'000 
 
Wireless                                                               41,631                     45,485                     94,193 
Photonics                                                              36,409                     43,425                     81,627 
CMOS++                                                                  1,504                        952                      2,196 
 
Revenue                                                                79,544                     89,862                    178,016 
--------------------------------------------------  -------------------------  -------------------------  ------------------------- 
 
Adjusted operating (loss) / profit 
 
Wireless                                                                3,731                      6,877                     11,393 
Photonics                                                               3,514                      6,071                      9,080 
CMOS++                                                                  (401)                      (563)                      (714) 
Central corporate costs                                               (7,710)                    (8,043)                   (14,373) 
 
Adjusted operating (loss) / profit                                      (866)                      4,342                      5,386 
 
Adjusted items                                                        (1,068)                    (9,346)                   (10,903) 
--------------------------------------------------  -------------------------  -------------------------  ------------------------- 
Operating loss                                                        (1,934)                    (5,004)                    (5,517) 
 
Reversal of losses of joint venture accounted for 
 using the equity method                                                    -                          -                      3,788 
Finance costs                                                         (1,067)                    (1,156)                    (2,165) 
 
Loss before tax                                                       (3,001)                    (6,160)                    (3,894) 
--------------------------------------------------  -------------------------  -------------------------  ------------------------- 
 
   8.   ADJUSTED PROFIT MEASURES 

The Group's results report certain financial measures after a number of adjusted items that are not defined or recognised under IFRS including adjusted operating profit, adjusted profit before income tax and adjusted earnings per share. The Directors believe that the adjusted profit measures provide a more useful comparison of business trends and performance and allow management and other stakeholders to better compare the performance of the Group between the current and prior year, excluding the effects of certain non-cash charges, non-operational items and significant infrequent items that would distort period on period comparability. The Group uses these adjusted profit measures for internal planning, budgeting, reporting and assessment of the performance of the business. The tables below show the adjustments made to arrive at the adjusted profit measures and the impact on the Group's reported financial performance.

 
 
                                   6 months to 30 Jun 2021                        6 months to 30 Jun 2020                           2020 
              Adjusted   Adjusted          Reported          Adjusted   Adjusted          Reported          Adjusted   Adjusted   Reported 
GBP'000s      Results     Items            Results           Results     Items            Results           Results     Items     Results 
-----------  ---------  ---------  -----------------------  ---------  ---------  -----------------------  ---------  ---------  --------- 
Revenue         79,544          -                   79,544     89,862          -                   89,862    178,016          -    178,016 
Cost of 
 sales        (67,083)      (253)                 (67,336)   (70,429)       (92)                 (70,521)  (144,689)      (177)  (144,866) 
-----------  ---------  ---------  -----------------------  ---------  ---------  -----------------------  ---------  ---------  --------- 
Gross 
 profit         12,461      (253)                   12,208     19,433       (92)                   19,341     33,327      (177)     33,150 
Other 
 losses          (136)          -                    (136)       (85)          -                     (85)          -          -          - 
SG&A          (13,191)      (815)                 (14,006)   (15,006)    (9,254)                 (24,260)   (27,759)    (6,938)   (34,697) 
Impairment 
loss on 
financial 
assets               -          -                        -          -          -                        -          -    (3,788)    (3,788) 
Profit on 
 disposal 
 of PPE              -          -                        -          -          -                        -      (182)          -      (182) 
-----------  ---------  ---------  -----------------------  ---------  ---------  -----------------------  ---------  ---------  --------- 
Operating 
 (loss) / 
 profit          (866)    (1,068)                  (1,934)      4,342    (9,346)                  (5,004)      5,386   (10,903)    (5,517) 
Reversal of 
 JV losses           -          -                        -          -          -                        -          -      3,788      3,788 
Finance 
 costs         (1,067)          -                  (1,067)    (1,156)          -                  (1,156)    (2,165)          -    (2,165) 
-----------  ---------  ---------  -----------------------  ---------  ---------  -----------------------  ---------  ---------  --------- 
(Loss) / 
 profit 
 before 
 tax           (1,933)    (1,068)                  (3,001)      3,186    (9,346)                  (6,160)      3,221    (7,115)    (3,894) 
Taxation           243         29                      272      (637)      1,826                    1,189      (519)      1,520      1,001 
             ---------  ---------  -----------------------  ---------  ---------  -----------------------  ---------  ---------  --------- 
(Loss) / 
 profit for 
 the 
 period        (1,690)    (1,039)                  (2,729)      2,549    (7,520)                  (4,971)      2,702    (5,595)    (2,893) 
-----------  ---------  ---------  -----------------------  ---------  ---------  -----------------------  ---------  ---------  --------- 
 
 
 
                                    6 months to 30 Jun 2021                      6 months to 30 Jun 2020                         2020 
                  Pre-tax     Tax           Reported           Pre-tax     Tax           Reported           Pre-tax     Tax    Reported 
 GBP'000s       Adjustment  Impact          Results          Adjustment  Impact          Results          Adjustment  Impact   Results 
--------------  ----------  ------  -----------------------  ----------  ------  -----------------------  ----------  ------  --------- 
Share based 
 payments            (758)    (45)                    (803)       (275)      44                    (231)       (265)     210       (55) 
Restructuring        (310)      74                    (236)           -       -                        -       (162)      39      (123) 
Patent dispute 
 legal fees              -       -                        -       (694)     132                    (562)       1,689   (321)      1,368 
Impairment -- 
 intangibles             -       -                        -     (6,537)   1,300                  (5,237)     (6,537)   1,242    (5,295) 
Onerous 
 contract                -       -                        -     (1,840)     350                  (1,490)     (1,840)     350    (1,490) 
Impairment -- 
 financial 
 assets                  -       -                        -           -       -                        -     (3,788)       -    (3,788) 
Reversal of JV 
 losses -- 
 financial 
 asset                   -       -                        -           -       -                        -       3,788       -      3,788 
Total              (1,068)      29                  (1,039)     (9,346)   1,826                  (7,520)     (7,115)   1,520    (5,595) 
--------------  ----------  ------  -----------------------  ----------  ------  -----------------------  ----------  ------  --------- 
 

The nature of the adjusted items is as follows:

Current Period Adjusted Items

   -- Share based payments -- The charge recorded in accordance with IFRS 2 
      'share based payment' of which GBP0.3m (H1 2020: GBP0.1m, FY20: GBP0.2m) 
      has been classified within cost of sales in gross profit and GBP0.5m (H1 
      2020: GBP0.2m, FY20: GBP0.1m) in selling, general and administrative 
      expenses within operating loss. 
 
   -- Restructuring -- The charge of GBP0.3m (H1 2020: GBPnil, FY20: GBP0.2m) 
      relates to employee retention bonus costs relating to the announced 
      closure of the Group's manufacturing facility in Pennsylvania, USA. The 
      charge was classified as selling, general and administrative expenses 
      within operating loss. Cash costs defrayed in the period total GBP0.2m 
      (H1 2020: GBPnil, FY20: GBPnil). 
 
   -- Onerous contract -- The prior period onerous contract provision of 
      GBP1.8m (H1 2020 and FY20) represents the cost of minimum guaranteed 
      future royalty payments associated with the use of cREO(TM) technology 
      acquired from Translucent Inc. Cash costs defrayed in the current period 
      total GBP0.3m. 

Comparative Period Adjusted Items

   -- Patent dispute legal costs -- The prior period credit relates to patent 
      dispute legal relates costs and settlement income associated with a 
      patent dispute defence. The prior period credit (H1 2020: GBP0.7m charge; 
      FY20 GBP1.7m credit) related to a settlement agreement of GBP1.8m 
      (US$2.5m), receipted in the current period, associated with legal costs 
      incurred by the Group that was negotiated with the plaintiff following an 
      arbitration panel ruling in favour of the Group and an increase in 
      insurance income following final settlement of the case with the Group's 
      insurers partially offset by legal costs incurred. The settlement was 
      cash received in the current period. 
 
   -- Impairment of intangibles -- The prior period non-cash charge of GBP6.5m 
      (H1 2020 and FY20) related to the impairment of the Group's non-filter 
      related cREO(TM) patent and development costs resulting from a lack of 
      intent to continue relevant development activities following the refocus 
      of resource and investment into cREO(TM) filter related development 
      activities. 
 
   -- Impairment of financial asset -- The prior period non-cash charge of 
      GBPnil (H1 2020: GBPnil, FY20 GBP3.8m) related to the expected credit 
      loss associated with the Group's preference share financial asset due 
      from its joint venture, Compound Semiconductor Centre Limited. 
 
   -- Reversal of joint venture losses (financial asset) - The Group treats its 
      preference share financial assets due from its joint venture, CSC, as a 
      long-term interest in an equity accounted investee and is required to 
      apply the loss absorption requirements of IAS 28.38 to the carrying 
      amount of the preference share financial asset, after the application of 
      any expected credit losses. Application of the loss absorption 
      requirements following an increase in expected credit losses resulted in 
      the reversal of the Group's share of previously allocated joint venture 
      losses to the preference share financial asset. This resulted in a prior 
      period non-cash credit of GBP3.8m which was recognised within 'share of 
      losses of joint ventures accounted for using the equity method' in the 
      Consolidated Income Statement. 

Adjusted EBITDA (adjusted earnings before interest, tax, depreciation and amortisation) has been calculated as follows:

 
                                     6 months to    6 months to   12 months to 
                                     30 June 2021   30 June 2020   31 Dec 2020 
(All figures GBP'000s)                Unaudited      Unaudited       Audited 
----------------------------------  -------------  -------------  ------------ 
Loss attributable to equity 
 shareholders                             (2,729)        (5,269)       (3,271) 
Non-controlling interest                        -            298           378 
Finance costs                               1,067          1,156         2,165 
Tax                                         (272)        (1,189)       (1,001) 
Depreciation of property, plant 
 and equipment                              6,583          6,230        12,983 
Depreciation of right of use 
 assets                                     1,888          1,850         3,681 
Amortisation of intangible fixed 
 assets                                     4,006          3,904         7,869 
(Profit) / loss on disposal of PPE              -              -           182 
Share based payments                          758            275           265 
Adjusted Items                                310          9,071         6,850 
----------------------------------  -------------  -------------  ------------ 
Restructuring                                 310              -           162 
Patent dispute legal costs                      -            694       (1,689) 
Impairment of intangibles                       -          6,537         6,537 
Onerous contract provision                      -          1,840         1,840 
Impairment of financial asset                   -              -         3,788 
Share of joint venture losses 
 (financial asset)                              -              -       (3,788) 
Adjusted EBITDA                            11,611         16,326        30,101 
----------------------------------  -------------  -------------  ------------ 
 
   9.   TAXATION 

The Group's consolidated effective tax rate for the six months ended 30 June 2021 was 9.1% (H1 2020: 19.3%, 2020: 25.7%). The effective tax rate differs from the theoretical amount that would arise from applying the standard corporation tax in the UK of 19.0% (H1 2020: 19.0%, FY20: 19.0%) principally due to the following factors:

   -- The Group's results report certain financial measures after a number of 
      adjusted items with a net tax impact of GBP29,000 as detailed in note 8. 
 
          -- The tax impact on the Group's share option schemes represents the 
             change in the expected tax impact on the exercise of options. The 
             tax impact principally reflects assumptions associated with future 
             corporate tax deductions on options where performance criteria are 
             expected to be achieved and the assessed value of any deduction 
             which is linked to Group's share price. 
 
          -- The tax impact on the Group's restructuring costs reflects the 
             Group's effective rate of tax in the United States of America. 
 
   -- Differences in overseas tax rates, principally the United States of 
      America and Taiwan. 
 
   -- Non-recognition of current year overseas tax losses, principally in 
      Singapore. 
   10.   EARNINGS / (LOSS) PER SHARE 
 
                                                     6 months to    6 months to   12 months to 
                                                     30 June 2021   30 June 2020   31 Dec 2020 
(All figures GBP'000s)                                Unaudited      Unaudited       Audited 
Loss attributable to ordinary shareholders                (2,729)        (5,269)       (3,271) 
Adjustments to loss after tax (note 8)                      1,039          7,520         5,595 
Adjusted profit / (loss) attributable to ordinary 
 shareholders                                             (1,690)          2,251         2,324 
--------------------------------------------------  -------------  -------------  ------------ 
 
Number of shares: 
Weighted average number of ordinary shares            801,020,442    796,338,502   797,228,579 
Dilutive share options                                 14,931,713      8,963,049    11,395,298 
--------------------------------------------------  -------------  -------------  ------------ 
                                                      815,952,155    805,301,551   808,623,877 
--------------------------------------------------  -------------  -------------  ------------ 
 
 
Adjusted basic (loss) / earnings per share     (0.21p)   0.28p    0.29p 
Basic loss per share                           (0.34p)  (0.66p)  (0.41p) 
 
Adjusted diluted (loss) / earnings per share   (0.21p)    0.28p    0.29p 
Diluted loss per share                         (0.34p)  (0.66p)  (0.41p) 
 

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares during the period.

Diluted loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of shares and 'in the money' share options in issue. Share options are classified as 'in the money' if their exercise price is lower than the average share price for the period. As required by IAS 33, this calculation assumes that the proceeds receivable from the exercise of 'in the money' options would be used to purchase shares in the open market in order to reduce the number of new shares that would need to be issued.

   11.   CASH GENERATED FROM OPERATIONS 
 
                                                         6 months to    6 months to   12 months to 
                                                         30 June 2021   30 June 2020   31 Dec 2020 
(All figures GBP'000s)                                    Unaudited      Unaudited       Audited 
------------------------------------------------------  -------------  -------------  ------------ 
Loss before tax                                               (3,001)        (6,160)       (3,894) 
Finance costs                                                   1,067          1,156         2,165 
Depreciation of property, plant and equipment                   6,583          6,230        12,983 
Depreciation of right of use assets                             1,888          1,850         3,681 
Amortisation of intangible assets                               4,006          3,904         7,869 
Impairment of intangible assets                                     -          6,537         6,537 
Impairment of financial assets                                      -              -         3,788 
Reversal of losses of joint ventures accounted for 
 using the equity method                                            -              -       (3,788) 
Non-cash provision movements                                      310          1,840         2,002 
Inventory write downs                                             623          2,167         3,025 
Loss on disposal of property, plant and equipment                   -              -           182 
Share based payments                                              758            275           265 
------------------------------------------------------  -------------  -------------  ------------ 
Cash inflow from operations before changes in working 
 capital                                                       12,234         17,799        34,815 
Decrease / (increase) in inventories                              769        (2,920)       (4,128) 
(Increase) in trade and other receivables                       (878)        (6,064)       (7,151) 
(Decrease) / increase in trade and other payables             (1,771)          6,270        11,921 
------------------------------------------------------  -------------  -------------  ------------ 
Cash inflow from operations                                    10,354         15,085        35,457 
------------------------------------------------------  -------------  -------------  ------------ 
 
   12.   ANALYSIS OF NET DEBT 
 
 
                                 6 months to     6 months to  12 months to 
                                 30 June 2021   30 June 2020   31 Dec 2020 
(All figures GBP'000s)            Unaudited        Unaudited       Audited 
------------------------------  -------------  -------------  ------------ 
 
Bank borrowings due after one 
 year                                (13,466)       (19,632)      (16,539) 
Bank borrowings due within one 
 year                                 (6,201)        (5,135)       (6,201) 
Lease liabilities due after 
 one year                            (48,245)       (43,913)      (42,226) 
Lease liabilities due within 
 one year                             (4,394)        (4,167)       (4,798) 
------------------------------  -------------  -------------  ------------ 
Total borrowings                     (72,306)       (72,847)      (69,764) 
Cash and cash equivalents              20,556         17,385        24,663 
------------------------------  -------------  -------------  ------------ 
Net debt                             (51,750)       (55,462)      (45,101) 
------------------------------  -------------  -------------  ------------ 
 

On 24 January 2019, the Company agreed a new GBP25,200,000 ($35,000,000) multi-currency revolving credit facility, provided by HSBC Bank plc that is secured over the assets of IQE plc and certain subsidiary companies. The facility has a three-year term and an interest rate margin of between 1.45 and 1.95 per cent per annum over LIBOR on any drawn balances.

On 29 August 2019, the Company agreed a new GBP30,000,000 asset finance facility, provided by HSBC Bank plc that is secured over various plant and machinery assets. The facility has a five-year term and an interest rate margin of 1.65% per annum over base rate on any drawn balances.

Bank borrowings relate to amounts drawn down on the Group's asset finance facility.

Cash and cash equivalents comprise balances held in instant access bank accounts and other short-term deposits

with a maturity of less than 3 months.

   13.   SHARE BASED PAYMENT ARRANGEMENTS 

Long term incentive awards

On 26 May 2000, as amended by shareholders at the Annual General Meeting on 17 May 2002, The Group established a share option plan that entitles the Group's Remuneration Committee to grant long term incentive awards over shares in the company to directors and employees of the Group.

On 19 February 2021, long term incentive awards that become exercisable between three and ten years from 31 March 2021, subject to continued employment and achievement of performance conditions relating to earnings per share and total shareholder return targets over a three-year vesting period were awarded to directors and employees of the Group. Under the terms of these awards, holders of vested options are entitled to purchase shares at the nominal value of the shares at the date of grant.

All options are to be settled by physical delivery of shares. The terms and conditions of the share options granted during the six months ended 30 June 2021 are as follows:

 
 
 Grant date/employees entitled                       Number of instruments   Contractual life of options   Vesting conditions 
--------------------------------------------------  ----------------------  ----------------------------  ----------------------------------------------------- 
 
Option grant to executive directors on 19 February               1,872,174                      10 years  3 years-service from grant date, diluted adjusted 
 2021                                                                                                      earnings per share targets between 0.50p -- 0.80p 
                                                                                                           and total shareholder return targets of between 100% 
                                                                                                           - 130% versus the FTSE All Share Index 
 
Option grant to employees on 19 February 2021 and                4,449,583                      10 years  3 years-service from grant date, diluted adjusted 
 21 May 2021                                                                                               earnings per share targets between 0.50p -- 0.80p 
                                                                                                           and total shareholder return targets of between 100% 
                                                                                                           - 130% versus the FTSE All Share Index 
--------------------------------------------------  ----------------------  ----------------------------  ----------------------------------------------------- 
 

Measurement of grant date fair values

The fair value of the long-term incentive awards, calculated as GBP3.3m (FY20: GBP1.4m) at the grant date has been determined using the Monte Carlo and Black Scholes models. The following inputs were used in the measurement of the fair values at grant date.

 
Principal assumptions                         2021   2020 
--------------------------------------------  -----  ----- 
Weighted average share price at grant date    44.00  37.85 
Weighted average exercise price                8.20  12.35 
Weighted average vesting period (years)           3      3 
Option life (years)                              10     10 
Weighted average expected life (years)            3      3 
Weighted average expected volatility factor     68%    64% 
Weighted average risk-free rate                0.4%   0.6% 
Dividend yield                                   0%     0% 
--------------------------------------------  -----  ----- 
 

The expected volatility factor is based on historical share price volatility over the three years immediately preceding the grant of the option. The expected life is the average expected period to exercise. The risk-free rate of return is the yield of zero-coupon UK government bonds of a term consistent with the assumed option life.

Non-market performance conditions are incorporated into the calculation of fair value by estimating the proportion of share options that will vest and be exercised based on a combination of historical trends and future expected trading performance. These are reassessed at the end of each period for each tranche of unvested options.

   14.   SHARE CAPITAL 
 
                                                      6 months to    6 months to   12 months to 
                                                      30 June 2021   30 June 2020   31 Dec 2020 
 Number of shares                                      Unaudited      Unaudited       Audited 
---------------------------------------------------  -------------  -------------  ------------ 
 
As at 1 January                                        800,364,569    796,142,302   796,142,302 
Employee share schemes                                     954,910        673,585     1,615,578 
IQE Taiwan minority interest acquisition -- equity 
 consideration                                                   -              -     2,606,689 
As at 30 June / 31 December                            801,319,479    796,815,887   800,364,569 
---------------------------------------------------  -------------  -------------  ------------ 
 
 
                                                      6 months to    6 months to   12 months to 
                                                      30 June 2021   30 June 2020   31 Dec 2020 
 (All figures GBP'000s)                                Unaudited      Unaudited       Audited 
---------------------------------------------------  -------------  -------------  ------------ 
 
As at 1 January                                              8,004          7,961         7,961 
Employee share schemes                                           9              7            17 
IQE Taiwan minority interest acquisition -- equity 
 consideration                                                   -              -            26 
As at 30 June / 31 December                                  8,013          7,968         8,004 
---------------------------------------------------  -------------  -------------  ------------ 
 
   15.   RELATED PARTY TRANSACTIONS 

Transactions with Joint Ventures

Compound Semiconductor Centre Limited ('CSC')

The Group established CSC with its joint venture partner as a centre of excellence for the development and commercialisation of advanced compound semiconductor wafer products in Europe and on its formation, the Group contributed assets to the joint venture valued at GBP12,000,000 as part of its initial investment.

The activities of CSC include research and development into advanced compound semiconductor wafer products, the provision of contract manufacturing services for compound semiconductor wafers to certain subsidiaries within the IQE plc Group and the provision of compound semiconductor manufacturing services to other third parties.

CSC operates from its manufacturing facilities in Cardiff, United Kingdom and leases certain additional administrative building space from the Group. During the period the CSC leased this space from the Group for GBP57,500 (H1 2020 GBP57,500, FY20: GBP115,000) and procured certain administrative support services from the Group for GBP117,500 (H1 2020: GBP117,500, FY20: GBP235,000). As part of the administrative support services provided to CSC the Group procured goods and services, recharged to CSC at cost, totalling GBP1,661,584 (H1 2020: GBP1,971,028, FY20: GBP3,740,282).

CSC granted the Group the right to use its assets following its formation for a minimum five-year period. Costs associated with the right to use the CSC's assets are treated by the Group as operating lease costs. Costs are charged by the CSC at a price which reflects the CSC's cash cost of production (including direct labour, materials and site costs) but excludes any related depreciation or amortisation of the CSC's property, plant and equipment and intangible assets respectively under the terms of the joint venture agreement between the parties. Costs associated with the right to use the CSC's assets totalled GBP3,012,300 (H1 2020: GBP3,223,900, FY20: GBP6,365,000) in the period.

At 30 June 2021 an amount of GBP349,000 (H1 2020: GBP559,800, FY20: GBP322,000) was owed from the CSC.

In the Groups balance sheet 'A' Preference Shares with a nominal value of GBP8,800,000 (H1 2020: GBP8,800,000, FY20: GBP8,800,000) are included in financial assets at an amortised cost of GBPnil (H1 2020: GBP3,951,000, FY20: GBPnil) and the Group has a shareholder loan of GBP243,000 (H1 2020: GBP240,500, FY20: GBP241,000) due from CSC.

   16.   RESPONSIBILITY STATEMENT 

We confirm that to the best of our knowledge:

   -- the condensed set of financial statements has been prepared in accordance 
      with IAS 34 Interim Financial Reporting as adopted for use in the UK; 
 
   -- the interim management report includes a fair review of the information 
      required by: 

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 
Dr Drew Nelson OBE                                Tim Pullen 
 President and Chief Executive Officer, IQE Plc.   Chief Financial Officer, IQE Plc. 
 7 September 2021                                  7 September 2021 
 
 
 

(END) Dow Jones Newswires

September 07, 2021 02:00 ET (06:00 GMT)

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