Cardiff-based Apple chip component supplier IQE has announced it has appointed KPMG as its new auditor, replacing PwC who has held the role since 2005, and has also repudiated claims from hedge funds over its governance and accounting practices
KPMG will audit the company's 2017 financial results, which are due to be published on 20 March 2018.
In the regulatory statement, IQE said: ‘As part of the handover process, PwC provided the company with a written statement which confirmed there were no matters which needed to be brought to the attention of the company's members, creditors or directors.
‘This announcement is not required under the AIM rules, but in the context of the two recent broadly similar and misleading reports published by funds with a short position in IQE, the company wishes to go above and beyond the disclosure requirements as stated under the AIM rules. The company holds itself to the highest standards of transparency, governance and integrity.’
Two funds holding short-selling positions in the technology company have published reports with allegations about IQE’s accounting approach. ShadowFall alleged faulty governance, while Muddy Waters claimed IQE was an ‘egregious accounting manipulator’. These allegations have been strongly denied by the company.
In a statement earlier this month IQE said: ‘Information in the Muddy Waters report is either factually inaccurate or has previously been disclosed in IQE's annual reports and financial statements. It is also important to note that like ShadowFall, Muddy Waters also holds a short position in IQE and so duly profits from any near-term reduction in IQE's share price.’
Some of the allegations centred on a joint venture, Compound Semiconductor Centre (CSC), with Cardiff University. IQE said the ShadowFall report implied that IQE has used the joint venture to ‘hide’ costs of IQE's own business, which the company said ‘is inaccurate’.
In the case of the Cardiff joint venture (CSC), the consideration for intellectual property licensing has been a combination of cash and receivable long-term loans. Both sources of consideration have been clearly stated in IQE's annual reports and financial statements. The revenue that the joint venture generates from IQE meets the cash cost of the joint venture's operation, at no financial gain or loss to IQE.
‘The EBITDA loss of the joint venture in 2016 was £0.7m, representing the cost of its own management, business development, and administration. The joint venture also has non-cash charges for amortisation of its intellectual property license and a depreciation of assets which gives a net loss of £4.4m,’ IQE stated.
The most recent IQE statement said: ‘IQE re-iterates that the CSC is a separate legal entity with a standalone board, separate management teams and a joint venture agreement that establishes governance procedures and decision making.
‘CSC staff are employed under their own contracts. IQE provides support services including recruitment, to avoid the duplication of costs. The costs incurred by IQE are recharged at cost to CSC, as disclosed in IQE's annual reports and financial statements.’
For its part, Cardiff University has put out a statement saying: ‘Cardiff University has invested equity of £21.8m in the CSC. IQE contributed their share in hardware, infrastructure and licensing intellectual property, all independently valued. The university entered into the joint venture as a strategic investment to ensure our world leading research has a well-founded route to commercialisation.
’Several project wins have been announced within the last year. Co-owned and controlled by Cardiff University and IQE, CSC applies corporate standards of governance including an independent chair, regular joint board meetings, annual reports and published accounts. The University is represented on the CSC board by appropriately qualified directors.’
IQE has stated it expects full year revenue to be ahead of market expectations, and to be not less than £150m for the year ending 31 December 2017.
Report by Pat Sweet