ALPHAWAVE IP GROUP
PLC
Company Number 13073661
LEI: 213800ZXTO21EU4VMH37
ALPHAWAVE SEMI AUDITED RESULTS FOR THE
YEAR ENDED 31 DECEMBER 2023
· Technology leadership and product portfolio underpin broader
customer base of 103 (FY 2022:80)
· Over
80% of FY 2023 licence and NRE bookings in advanced
nodes
· Revenue up 74% year-on-year to US$322m (FY 2022:
US$185m)
· Operating loss of US$19m compared to an operating profit of
US$38m in FY 2022
· Adjusted EBITDA[1] of US$63m and adjusted EBITDA margin of
19% compared with US$47m and 25% in FY 2022
· EBITDA1
of US$10m, down from US$49m in FY 2022
· Cash
generated from operations of US$25m (Restated FY 2022:
US$1m)
· Cash
and cash equivalents balance of US$101m; Net debt of
US$119m
LONDON, United
Kingdom and TORONTO, Ontario, Canada 23 April 2024
- Alphawave IP Group plc (LSE: AWE, the "Company" or
"Alphawave Semi"), a global leader in high-speed connectivity for
the world's technology infrastructure, has published its results
for the year ended 31 December 2023.
Financial
Summary and APMs1
- US$m
|
FY 2023
|
FY 2022
|
Change
|
Licence and
NRE
|
167.6
|
137.6
|
22%
|
Royalties and
silicon
|
154.2
|
47.8
|
222%
|
Total revenue
|
321.7
|
185.4
|
74%
|
Operating (loss) / profit
|
(19.4)
|
37.6
|
nm
|
Operating
margin
|
-6%
|
20%
|
|
EBITDA1
|
9.8
|
49.3
|
(80)%
|
EBITDA
margin
|
3%
|
27%
|
|
Adjusted
EBITDA1
|
62.6
|
46.8
|
34%
|
Adjusted
EBITDA margin
|
19%
|
25%
|
|
Net (loss)
|
(51.0)
|
(1.1)
|
nm
|
Net
margin
|
-16%
|
-1%
|
|
Cash generated from
operations[2]
|
25.5
|
1.0
|
nm
|
Cash and cash equivalents
|
101.3
|
186.2
|
(46)%
|
Net cash/(debt) balance
|
(119.1)
|
(24.0)
|
397%
|
|
|
|
|
Bookings[3] and Design Win
Activity - US$m
|
FY 2023
|
FY 2022
|
Change
|
Licence and NRE
|
274.0
|
131.3
|
109%
|
Royalties and silicon
|
109.9
|
96.8
|
14%
|
New Bookings
|
383.9
|
228.1
|
68%
|
Additional design win activity - FSA (Flexible
Spending Account) drawdowns and China re-sale
licences[4]
|
3.8
|
23.2
|
(84)%
|
Number of revenue generating
end-customers
|
103
|
80
|
22%
|
Due to rounding, numbers presented in the table
may not add up to the totals provided and percentages may not
precisely reflect the absolute figures. 'nm' where referenced,
means 'not meaningful'.
Tony Pialis,
President and Chief Executive Officer of Alphawave Semi,
said: "In 2023 we delivered another year of
strong revenue growth, up 74% year-on-year, while investing to
support our growing pipeline and future revenue growth. Our
pipeline reflects the strong momentum in the roll out of next
generation AI and data centre infrastructure and our Q1 bookings
reflect that momentum. Our leading connectivity
portfolio combined with our talented team and a growing market
opportunity give us confidence in the long-term potential of our
business."
John Lofton
Holt, Executive Chair of Alphawave Semi, added:
"During 2023 we made significant progress on our strategic
objectives. Our financial performance in 2023 was strong albeit
below our outlook for the year. With a full product portfolio of
leading connectivity solutions, we can help our customers meet
their connectivity needs across their data centres and create
long-term value for our shareholders and other
stakeholders."
Business and
Technology Highlights
· In
2023, Alphawave Semi expanded its ongoing collaboration with the
leading foundries in the industry
· The
Company's IP product portfolio increased to over 235 IPs
(Intellectual Property) at the end of 2023, covering the full range
of interfaces required in data centres
· Alphawave Semi joined Arm Total Design, an ecosystem to make
specialised solutions based on Arm® Neoverse™ Compute Subsystems
(CSS) widely available across the infrastructure
· The
Company announced two successful tape outs on TSMC's most advanced
3nm process of its High Bandwidth Memory 3 (HBM3) PHY and Universal
Chiplet Interconnect Express™ (UCIe™) PHY IPs, paving the way for a
new generation of chiplet-enabled silicon platforms, tailored for
hyperscaler and data infrastructure customers
· Alphawave Semi was the first company to announce UCIe PHY IP
supporting faster die-to-die data rates of 24Gbps per
lane
· The
Company maintained its technology leadership with 34 design wins of
which six were design wins in 3nm
· During
2023, the Company expanded its revenue-generating end-customer base
to 103 (FY 2022: 80 customers)
· Continued to build sales and R&D capabilities with new
offices in Pune (India) and Ottawa (Canada)
· Closing headcount increased by 134 people globally, bringing
the total headcount to 829 (2022: 695)
Outlook
· The
Company expects FY 2024 revenue of US$345m to US$365m and adjusted
EBITDA of approximately US$70m (or approximately 20% of revenue),
which is at the mid-point of the revenue guidance range. This
reflects the deliberate decision to de-prioritise growth in China,
which will reduce materially as a proportion of revenue. We expect
the revenue profile in 2024 to be back end loaded and H1 2024
revenue to be below H1 2023, which saw a significant contribution
from the legacy OpenFive backlog.
· The
Company expects FY 2025 revenue of approximately US$450m and
adjusted EBITDA margin between 20%-25%.
Capital
Markets Day
The Company will host a Capital Markets Day in
London, on 4 June 2024. Alphawave Semi's executives will present
the Company's long-term business strategy as it enters its next
phase of technology leadership in connectivity for digital
infrastructure markets.
Results
Presentation and Webcast
A presentation for investors and analysts will
be held today at 8.30am BST. The webcast will be accessible
via:
https://awavesemi.zoom.us/s/84323327486?pwd=WFdWQzArdVBsN3JJcGlFbEM5WUo3Zz09
Passcode: 802056
Or by phone:
United Kingdom: +44 203 901 7895 / +44 208 080
6591 / +44 330 088 5830
United States: +1 669 900 9128 / +1 689 278 1000 / +1
719 359 4580 or +1 253 205 0468
Webinar ID: 843 2332 7486
Passcode: 802056
International numbers available:
https://awavesemi.zoom.us/u/kdbhCTHaVt
The full announcement, presentation and a replay of
the webcast will be made available on the Investor Relations
section of the website: https://awavesemi.com/financial-results/
About
Alphawave Semi (LSE: AWE)
Alphawave Semi is a global leader in high-speed
connectivity and compute silicon 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 centres, 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
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.
AI-Led End
Markets Remain Strong
Against the backdrop of an uncertain economic
environment, digital infrastructure markets remained strong driven
by growing Artificial Intelligence (AI) demand. Our core markets
continued to provide compelling opportunities for
growth.
During 2023 we saw the introduction of multiple
language-based AI models. Hyperscalers are increasingly focusing on
ramping up their AI infrastructure in data centres to
cater to the demand for training proprietary AI models, launching
native B2C generative AI user applications, and expanding AIaaS
(Artificial Intelligence-as-a-Service) product
offerings[5].
Worldwide end-user spending on public cloud services is forecast to
grow 20.4% to total $678.8 billion in 2024, up from $563.6 billion
in 2023[6]. This is
the result of organisations racing to adopt AI technology and
hyperscaler verticals integrating industry-specific software,
platform and infrastructure services. 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 and we
expect our addressable market to grow at approximately 20% CAGR
over the 2023-2026 period[7].
In the last decade, AI was run as
software on traditional server grade, general performance Central
Processing Units (CPUs). In order to deliver the inevitable
performance gains, data centres transitioned to Graphics Processing
Units (GPUs) based architecture. GPUs can perform a higher number
of calculations in parallel and have dedicated hardware for
implementing complex mathematical models like neural networks and
deep learning. Our business is well positioned to benefit from the
ongoing upgrade of the infrastructure required to support the scale
of AI infrastructure. As AI technologies become more powerful, the
demand for data will become even greater. This makes data speeds,
bandwidth, latency and robustness of connectivity technologies
essential to the future of AI technology. Cloud, AI and software
providers will also benefit from the advantages of chiplet
architecture and optimising silicon to their specific requirements
while obtaining 30%-40% cost savings[8], which will provide multiple
opportunities for our custom silicon offering.
AI-centric data centres with powerful compute
engines will require the upgrade of all the network components
enabling faster data speeds and bandwidth. A new optical network
supporting 800G and 1.6T solutions will be rolled out over the
coming years, alongside other components such as switches, ports,
etc. For example, recent market research expects nearly half of the
data centre switch ports will be driven by 400 Gbps speeds and
higher by 2027. In addition, 800 Gbps is expected to eclipse 400
Gbps by 2025[9].
Our pipeline of customer opportunities reflects
these trends. Our customers continue to seek differentiation and
enhanced performance by transitioning faster to lower design nodes.
Over 80% of our licence & NRE bookings in 2023 were in advanced
nodes, 7nm manufacturing process and below, and we had additional
design wins in 3nm. 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 support the roll out of AI technologies, it
will continue to make the transition to utilise leading and more
efficient technologies. This gives us confidence in the long-term
outlook of the business.
FY 2023
Financial Performance Summary
At the end of 2023
backlog[10] was
US$354.9m representing a 7% decrease year-on-year (Restated FY
2022: US$379.7m). The decrease was mainly driven by adjustments and
cancellations of which nearly half were made to the remaining
backlog acquired through OpenFive.
New bookings in 2023 totalled
US$383.9m[11] up 68%
year-on-year (FY 2022: US$228.1m). Licence and NRE bookings in 2023
were up 109% to US$274.0m (FY 2022: US$131.3m) of which over 80%
were in advanced nodes and less than 10% came from Chinese
customers. Royalties and silicon bookings in 2023 totalled
US$109.9m compared to US$96.8m in 2022. Most of these bookings
relate to legacy custom silicon designs in production for Chinese
customers.
Revenue in 2023 was up 74% year-on-year to
US$321.7m (FY 2022: US$185.4m). During FY 2023, we recognised
revenue from 103 end-customers, compared to 80 end-customers in FY
2022. 59% of revenue in the period was generated from Chinese
customers (FY 2022: 57%), including the legacy custom silicon
business from the acquisition of OpenFive. Revenue excluding China
was US$131.3m, up 63% year-on-year (FY 2022: US$80.7m).
Revenue for the year was below our guidance mainly due to our
accelerated transition away from our legacy custom silicon business
in China and the timing of revenue recognition of long-term
contracts in advanced nodes.
Gross margin in 2023 was 51% compared to 67% in
2022. 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 695 employees at the end 2022 to 829 at end 2023, as
well as investment in associated R&D software tool costs,
finance, HR, legal and corporate marketing teams reflecting the
increased complexity and the extended geographical footprint of the
Group.
In 2023 other operating expenses amounted to
US$52.9m, compared to other operating income of US$2.5m in FY
2022[12]. Stock-based
payment costs of US$40.7m in 2023 (FY 2022: US$15.7m) reflect the
increased headcount, significant one-time grants awarded to new
members of the senior management team who joined us in 2023 and the
payment of 2023 employee bonuses in shares rather than in cash. In
2023 we recognised as an expense US$8.4m of the compensation
element of Banias Labs' deferred cash rights which extend to August
2026 (FY 202210: income of
US$1.7m). In other expenses we also recognised an exchange loss of
US$3.0m compared to US$36.8m of exchange gains in 2022 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.
During 2023, the business incurred an operating
loss of US$19.4m, significantly down compared to the prior year (FY
2022: operating profit of US$37.6m) and reflected the decrease in
gross margin and higher operating expenses. Operating margin in
2023 was -6%, also significantly below FY 2022 (FY 2022:
20%).
Adjusted EBITDA in 2023 was up 34% year-on-year
to US$62.6m (19% margin) (FY 2022: US$46.8m or 25% margin) but
below our guidance for the year. The year-on-year increase was the
result of the revenue growth partially offset by the lower gross
margin and higher operating expenses. The decrease in adjusted
EBITDA margin 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 2023 was US$3.4m, compared to
US$1.7m in 2022. The increase was largely driven by cash balances
being invested in interest-bearing accounts and higher interest
rates.
Finance expense in 2023 was US$8.8m, US$5.2m
higher than in 2022. The increase was mainly 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$14.7m, compared to US$18.5m in 2022. At the
end of 2023, the Group owned 42.5% (2022: 42.5%) of WiseWave, a
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.
In 2023, the Group incurred a net loss of
US$51.0m, compared to a US$1.1m net loss incurred in
2022.
Cash generated from operations was US$25.5m
compared with US$1.0m in 2022[13]. During the period we saw a cash
outflow from working capital of approximately US$41.7m (Restated FY
2022: US$50.1m). In 2022 there were one-time payments of
approximately US$6.0m relating to M&A and professional fees and
included US$28.2m of cash outflows related to deferred compensation
payable as part of the acquisitions of Precise-ITC and Banias
Labs.
Cash inflow from operating activities in 2023
was US$15.8m compared to an outflow of US$18.9m in
202211. Net income tax paid in
2023 was US$9.7m, below US$19.9m paid in 2022. Capital expenditure
(excluding capitalised development expenditure) during 2023
totalled US$20.4m (US$8.3m in 2022), comprising US$18.6m of plant,
property and equipment and US$1.8m of intangibles. The increase in
plant, property and equipment was mainly due to purchases of IT and
lab and test equipment as we ramp our own product development
capabilities. In 2023 we capitalised US$53.3m of development
expenditure. This was mainly related to the development of our
opto-electronics products (FY 2022: US$7.2m).
We closed the period with a cash and cash
equivalents balance of US$101.3m compared to US$186.2m at the end
of 2022. At the end of 2023 we had loans and borrowing for an
amount of US$220.4m, resulting in a net debt position of US$119.1m
(FY 2022: US$24.0m).
We ended 2023 with aggregate goodwill of
US$309.2m from the acquisitions of Precise-ITC, OpenFive and Banias
Labs. Aggregate goodwill has decreased from our provisional
estimate of US$331.9m in 2022, following the finalisation of the
purchase price adjustment for OpenFive. This included an agreement
reached with SiFive in January 2024, regarding OpenFive's cash,
indebtedness and working capital on completion. As a result, SiFive
paid the resulting purchase price adjustment of
US$12.4m.
Accrued revenue, where revenue recognition
conditions are met under IFRS 15 but we have not billed or
collected any amount, increased from US$57.0m at the end of
2022[14] to US$65.2m
at the end of 2023. 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$40.8m of our accrued revenue balance at the end of 2023 (FY
2022: US$20.2m).
Investments in equity-accounted associate,
namely the value of the investment in WiseWave was US$nil at end of
2023 (FY 2022: US$nil), 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 2023, current trade and other payables
decreased from US$88.7m to US$69.3m. This decrease was
predominantly due to timing differences of payments to
vendors.
Contract liabilities, where we have invoiced or
received money for products or services where revenue recognition
conditions are not met, decreased from US$96.9m at the end of 2022
to US$56.0m at the end of 2023. This decrease was due to the order
intake for custom silicon products where in some instances
customers were 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
growth
|
We have a limited operating history and are
growing rapidly with increased pressure on cash flows. If we do not
manage our growth successfully, fail to execute on our strategy,
fail to meet future debt covenants or maintain sufficient
liquidity, 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
and failure to maintain our technology leadership
|
We seek to maintain our competitive advantage
by being first to market with new IP as data speeds increase and
manufacturing sizes decrease. If these industry transitions do not
materialise, or are 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 AI, 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 with WiseWave
|
WiseWave is today an important element of our
strategy 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 our
equity investment diminishes in value. WiseWave is a new venture
and if it does not effectively execute on its business plan,
we may be negatively impacted
|
Dependence on
licensing revenue
|
Our financial performance is less dependent on
licensing revenues, and we do not anticipate a material
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
key personnel and ability to attract talent
|
We rely on the senior management team and our
business could be negatively impacted if we cannot retain and
motivate our key employees. Our ability to grow the business is
also dependent on attracting talent, particularly in R&D and
engineering, and if we are unable to do so, our business may be
negatively impacted.
|
External
environment and events
|
Semiconductors are becoming increasingly
important 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 the Middle East potentially has wide-ranging impacts,
including global economic instability, increased geopolitical
tensions and disruption to our operations and supply
chains.
|
IP protection
and infringement
|
We protect our technology through trade
secrets, 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
third-party manufacturing foundries
|
We rely on third-party semiconductor foundries,
both as customers and as manufacturing partners to our customers.
If foundries delay the introduction 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
complex IT systems
|
We rely heavily on IT systems to support our
business operations. The vast majority of our design tools,
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.
|
Executive Chair's statement
A
year of significant progress.
John Lofton
Holt
Executive Chair
Dear shareholder,
2023 was our third year as a public listed
company, a year during which we consolidated the acquisitions we
made in 2022, while continuing to invest in future revenue growth
for 2024 and beyond.
This has been a year of significant progress,
where the integrated businesses began to work with a single
long‑term ambition, to be the
leader in wired connectivity solutions for next generation AI and
digital infrastructure, and to create value for our stakeholders in
pursuit of our goal. The AI boom is not only an important
driver for AI as an end-market, but is a force‑multiplier with the associated infrastructure
investments needed to support AI. All of these markets and end
applications need our connectivity technology in the form of IP,
custom silicon and connectivity products.
Following the success of our first Capital
Markets Day in early 2023, we will be hosting our second event on
4 June 2024. During the event we will share with analysts and
investors our long-term ambition for the business as well as all
the achievements and the progress we have made so far.
Whilst we remain mindful of the challenging
global macro and geopolitical environment, we are laying the
foundations ahead of the scaling phase and continue to deliver
growth in all three areas of our business: IP licensing, custom
silicon, and our exciting new range of connectivity products that
will start generating revenue in 2024.
Financial
performance
In 2023 we consolidated the three acquisitions
we made in 2022 under the Alphawave Semi umbrella. We also made
significant organic investments in future revenue growth through
hiring and business infrastructure investment.
Bookings for the full year were US$383.9m, 68%
above the prior year (FY 2022: US$228.1m). Alongside the strong
growth in bookings, we delivered another year of robust revenue
growth, up 74% year‑on-year, a
significant achievement for the business albeit below our guidance
for the year. Adjusted EBITDA was US$62.6m, 34% above the prior
year (FY 2022: US$46.8m) although below our guidance for the
year of approximately US$87m. Adjusted EBITDA margin of 19% was
below 2022 (FY 2022: 25%). EBITDA in 2023 was US$9.8m compared to
US$49.3m in 2022. In 2023, the business incurred a net loss of
US$51.0m compared to a net loss of US$1.1m in 2022. The cash
position at the end of 2023 was US$101.3m. This was lower than the
prior year, reflecting the ongoing investment in future revenue
growth, including the development of our
new opto‑electronic
products.
People, culture
and values
Our employees have embodied our customer focus,
with their commitment and passion at the core of our success. On
behalf of the Board, I would like to express our sincere gratitude
for their hard work during the year.
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, helping us to build strong
relationships with all our stakeholders. Throughout this report are
examples of how we live these values, achieving results and
maintaining a strong customer focus with an unwavering commitment
to collaboration, honesty, transparency and
accountability.
Governance and
oversight
During the year we continued to evolve our
governance capabilities, particularly on financial oversight, as we
welcomed David Reeder to our Board as a Non‑Executive Director. David has served in senior
finance and operational roles in global technologies companies,
bringing vast commercial and operational experience in
semiconductors as well as additional governance around finance
operations. David is a member of the Audit Committee and the
Nomination Committee.
We also welcomed Rahul Mathur as our new CFO in
October 2023. Rahul's extensive experience in senior finance
positions, consistently delivering strong financial results and
shareholder value within listed semiconductor companies, has
already been invaluable as we continue to build the foundations for
the next phase of business growth. I have the pleasure of working
with Rahul on a daily basis and I feel more confident than ever in
our finance team.
Stakeholder
relationships
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 all our stakeholders.
We contribute to society by promoting diversity,
fostering the next wave of innovation and innovators, promoting
responsible business practices 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.
We are a fabless business, i.e. we do not own
any manufacturing facilities, we partner 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 July 2023, we joined the United Nations
Global Compact (UNGC), supporting the Ten Principles of the UNGC on
human rights, labour rights, environment and
anti‑corruption. In this
report, you will find how some of our activities advance the
broader development goals of the United Nations, particularly the
Sustainable Development Goals.
Sustainability
During the year we made further progress on our
sustainability strategy by undertaking our first materiality
assessment. The ESG Steering Committee met three times during
the year and the outcome of the materiality assessment was
presented at the last meeting of the year. The assessment will
inform our ESG strategy and will help us prioritise our key
sustainability areas. In 2024 we will review and consider the
implementation of its detailed recommendations.
Update on our
China go-to-market strategy
Following the simplification of our China
strategy in 2022, during 2023 the Group made three small additional
investments in WiseWave for a total of US$14.7m. We are seeking to
exit our equity investment in WiseWave in 2024 but we will time
this exit based on market conditions to maximise return to
shareholders.
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 adapts to the
evolving geopolitical and macroeconomic environment.
Outlook 2024
and beyond
In 2024 we will put in place the final pieces of
the consolidation phase and start preparations for the beginning of
the scaling phase of our business in 2025. For the FY 2024 we
expect revenue to be between US$345m to US$365m and adjusted EBITDA
margin of approximately 20%. Our 2025 targets have been revised to
approximately US$450m of revenue (previously US$500m) and adjusted
EBITDA margin between 20% and 25% (previously 30%).
We are executing on our strategy and we remain
excited about the growth potential of our business. We are creating
a leading semiconductor business in high-speed connectivity and
compute technologies. But most importantly, we are building on our
strengths to generate significant value for shareholders and other
stakeholders over the long term.
John Lofton
Holt
Executive Chair
23
April 2024
CEO Q&A
Investing to become the next leader in connectivity for
AI.
Tony
Pialis
President & Chief Executive
Officer
What would you
highlight about the business performance in 2023?
During 2023 we signed a record US$383.9m of
bookings (FY 2022: US$228.1m), up 68% over the prior year. Of the
US$274.0m of licence and NRE bookings signed in 2023, over 80% were
in advanced nodes, 7nm and below. Given the complexity of this
market, our success reflects the strength of our technology
leadership and the business potential of the acquisitions we made
in 2022. Our backlog at the end of 2023 was 7% below the prior
year. In 2023 we reduced our backlog by approximately US$87m of net
adjustments of which nearly half came from the backlog acquired
through OpenFive. Our backlog is now enriched by more business
in advanced nodes from which we can extract higher profitability
over the long-term.
We continued to integrate the business
operations of the 2022 acquisitions and delivered strong revenue
growth but our financial results were below our guidance for the
year. This was mainly as a result of our accelerated transition
away from our legacy custome silicon business and differences in
the timing of the revenue recognition of long-term contracts in
advanced nodes. In 2023, revenue grew 74% via our historical IP and
our newly formed Custom Silicon business. In parallel, we continued
to invest in R&D, maintaining our technology leadership. As a
result, adjusted EBITDA was up 34% from the prior year to US$62.6m
and adjusted EBITDA margin was below 2022 at 19% (FY 2022: 25%). In
2023 the business generated a loss before tax of US$39.5m (FY 2022:
profit before tax US$17.2m).
During the year our cash and cash equivalents
balance decreased to US$101.3m (FY 2022: US$186.2m), as we
continued to invest in the development of new products and the
necessary equipment to support future growth. We continue to
review our capital allocation as well as available sources of
capital to support our long term growth strategy.
With an enhanced product portfolio of
connectivity technology for AI, as well as with our partnership
with ARM to implement their latest Neoverse cores for advanced AI
and data centre compute products, we can further monetise our
investments in the form of custom silicon and other connectivity
products. This is allowing us to access a larger addressable market
focused on AI, gain greater scale and enhance our competitive
position. The combined custom silicon design wins in 2023 will
support our mid and long-term revenue targets as we start to
generate revenue from the production phase. These wins have a
potential lifetime revenue from silicon production of approximately
US$500m, which is not yet reflected in our bookings or backlog. The
first silicon production orders are expected in 2025, which is when
they will start contributing to revenue.
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 2023.
How does
Alphawave Semi compete against much larger players in the
industry?
High-speed connectivity IP and advanced ARM
compute are the DNA of the business. Our Company has been
recognised by the world's largest foundries as the premier leader
in high‑speed connectivity.
But we don't just develop great connectivity, we also do it in
the world's most advanced nodes. We look into our portfolio of now
over 235 silicon IPs and pull from it the ingredients that we can
bring to the table in order to meet our customers'
needs.
Our competitive positioning is built on our
technology leadership and a full product portfolio of leading
connectivity solutions coupled with our partnership delivering ARM
compute to the world's most advanced artificial intelligence (AI)
processors. This is what differentiates us from some of our
competitors that are more focused on certain products or segments.
We have been part of TSMC IP Alliance Programme, a key component of
the Open Innovation Platform®, for five consecutive
years. In 2023 we became a founding partner of TSMC 3DFabric™
Alliance working towards the adoption of chiplet
products.
With a unique portfolio of leading-edge
connectivity technology, we are working with our customers to meet
their connectivity needs across their data centres and create
long‑term business
relationships.
Many of our customers have first-hand experience
of our technology through our IP, which is often the foundation of
our business relationship. Once a customer has that positive
experience of our technology it creates opportunities to work
across other connectivity needs, such as custom silicon or
opto-electronics.
How are data
centres changing to enable the increasing adoption of
AI?
In the last decade, AI was run as software on
traditional server grade, general performance CPUs. In order to
deliver the inevitable performance gains, data centres transitioned
to GPU‑based architecture.
GPUs can perform a higher number of calculations in parallel and
have dedicated hardware for implementing complex mathematical
models like neural networks and deep learning.
However, as we scale the amount of compute from
teraflops to petaflops, we need to build a faster network using
leading opto-electronic solutions that can deliver the increased
compute capacity with a lower energy footprint.
This has created accelerated momentum, where
hyperscalers are designing and implementing their own AI engines,
commonly using ARM processors, in addition to industry standard
GPUs. These engines are optimised for their specific models, and
deliver higher performance using lower power.
Not surprisingly, the custom silicon market is
expected to grow at a healthy double-digit rate over the next
few years as hyperscalers invest in the development of their
own AI engines.
AI and machine learning (ML) put a tremendous
amount of bandwidth performance requirements on the network, and
are therefore among the major growth drivers for data centre
switching over the next five years. With bandwidth in AI growing,
the portion of Ethernet and PCI-Express switching that is used to
connect AI/ML and accelerated computing will migrate from a niche
today to a significant portion of the market
by 20271. Our connectivity technology plays a
central role in building the network connecting the switches,
optics and GPUs.
How do you see
business in China evolving over time?
In 2023, Licence and NRE bookings from China
remained below 10% for a second consecutive year (FY 2023: 7%;
FY 2022: 10%). This is an important leading indicator of the
transformation of our pipeline and our revenue over the medium to
long term. Based on this, we expect a decline in revenue from China
over the longer term, which will be mainly offset by revenue from
North American customers.
In 2023, revenue from China was US$190.4m or 59%
of the Group revenue (2022: US$105m or 57% of the total). The
increase in revenue from China was mainly driven by the legacy
silicon business from OpenFive.
China is an important market for the
semiconductor industry and the Group will continue to comply with
all applicable rules and regulations to ensure we can create
sustainable customer relationships in all geographies.
1.
https://650group.com/press-releases/data-center-ai-networking-surges-over-100-y-y-as-infiniband-and-ethernet-achieve-record-revenues-in-1q23-
according-to-650-group/.
Did the custom
silicon business perform as expected? What do you think is the
strength of the offering?
Our broad portfolio of high-speed connectivity
IP is what sets us apart. We can bundle our IP and expertise to win
larger and more complex custom silicon opportunities at
leading‑edge process
nodes.
We have transformed our custom silicon business
from a low margin business to a highly scalable AI and data centre
business, and our pipeline is built on opportunities
in advanced nodes, 5nm and below.
Our custom silicon team deploys the necessary IP
from our portfolio, working closely with our customers, taking
their specifications and transforming them into silicon.
In 2023, we achieved key wins into next generation
800G/1.6T solutions for data centre, including a 3nm highspeed IP
licensing deal and a 3nm custom ASIC win for AI. These wins were
the result of our leading connectivity IP, our partnership with ARM
and our design capability in advance nodes.
Is the
Connectivity Products business on track to deliver first revenue in
2024?
The Connectivity Products business is developing
the next generation of PAM4 and coherent technology to drive the
cabling. This will feed the exponential data growth over the next
several generations of product refresh, creating the optical
network that connects all the switches inside data centres. We are
working closely with a leading North American hyperscaler and we
expect first revenue in 2024.
What are the
main sustainability priorities for Alphawave
Semi?
In 2023 we joined the United Nations Global
Compact and in 2024 we will be submitting our first Communication
on Progress describing our company's effort to implement the Ten
Principles. In addition, we undertook our first sustainability
materiality assessment, which is informing our sustainability
strategy and helping us prioritise what is most critical to the
long‑term success of the
Company. The outcome of the assessment was shared with
the Board.
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.
We have delivered ongoing progress with our
sustainability reporting and we will continue to do so
over the coming years.
What's next for
Alphawave Semi?
During 2023 we consolidated and fully embedded
the acquisitions we made in 2022.
We also continued to invest in future revenue
growth, expanding our workforce and pushing ahead with the
development of leading connectivity technologies and our own
connectivity products.
Despite an uncertain macro and geopolitical
environment, our customers continue to invest in leading
technology. AI investments are ramping up quickly and could
amount to US$200bn globally by 20251. Our pipeline
reflects the accelerated momentum in the rollout of next generation
AI infrastructure and 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.
https://www.goldmansachs.com/intelligence/pages/ai-investment-forecast-to-approach-200-billion-globally-by-2025.html.
ESG
Introduction
Our success and long-term value creation depend
on the close collaboration of various stakeholders. Working closely
together and acting responsibly can positively impact our business
while creating long-term value for our shareholders, employees,
customers, partners and the communities where we live and
work.
In 2023 we established the ESG Steering
Committee, undertook our first sustainability materiality
assessment and joined the United Nations Global Compact.
The Group supports the UN SDGs and through our
existing programmes and technologies we contribute to progress
against five of the 17 goals.
Managing our resources and relationships
We are managing our resources and relationships
to create a sustainable business model, aiming to preserve and
create long-term value for a wide range of stakeholders.
A sustainable
business model
Vision
Since the Company's IPO, we have sought to
carefully manage our key sustainability issues and risks. We aim to
embed sustainable and responsible business practices into the way
we act internally and engage with external stakeholders in order to
create and preserve long‑term value for a wide range of
stakeholders.
Applicable external
standards
We participate in and are committed to the
principles of the following standards:
·
United Nations Global Compact (since July 2023).
·
ISO 9001 Quality Management System Standard for our custom
silicon operations.
·
Sustainability Accounting Standards - SASB Semiconductor
Standard version 2023-12.
In addition to the above, we apply the UN
Guiding Principles and international recognised labour rights, and
aim to contribute to the achievement of the UN SDGs.
·
UN Guiding Principles.
Management approach
In 2023, we established the ESG Steering
Committee, joined the United Nations Global Compact and undertook
our first sustainability materiality assessment.
The ESG Steering Committee is a
multi-disciplinary group chaired by the Executive Chair, with
representatives from People, Places and Culture (PPC), Governance,
Investor Relations, IT, Risk Management and Supply Chain.
The purpose of the ESG Steering Committee
is to:
·
ensure all relevant sustainability areas are identified,
managed and reported upon, externally and internally;
·
co-ordinate overall ESG strategy and identify areas of
improvement across the Group; and
·
ensure consistency between consideration of ESG issues and
the Group's main strategic decisions.
The ESG Steering Committee met three times
during 2023. During the year, the Steering Committee reviewed and
discussed ESG ratings, and considered actions to improve a range of
activities. The ESG Steering Committee also supports the
identification of ESG risks and opportunities, reviews all relevant
KPIs and proposes changes when necessary.
In December 2023 the ESG Steering Committee
reviewed the outcome of our first materiality assessment for the
first time. Further reviews will take place during 2024 by each
functional lead and these will inform our future ESG strategy and
prioritise our activities across the Group.
PPC, Operations Manufacturing and IT are
responsible for the management of their respective sustainability
issues, and are subject to the oversight of the ESG Steering
Committee and the management team. Where sustainability management
performance issues are of sufficient importance, responsible
departments will report these directly to the Board on an ad
hoc basis.
Main
sustainability issues
In 2023, the Company undertook its first
sustainability materiality assessment to support the ESG Steering
Committee in the ongoing development of the Company's ESG strategy
and management approach. The outcome of the assessment provided a
holistic view of where the Company should focus its ESG management
and reporting efforts (i.e. identification of its material ESG
issues, as well as insight into key risks, opportunities and
impacts). It provided recommendations on a number of areas which
will be reviewed in detail in 2024.
The assessment was carried out by an external
third party, following a structured four-stage approach to identify
what matters most to the Company and its stakeholders:
·
baseline research including sector analysis, peer
benchmarking, ESG rating reports, customer questionnaires, external
standards and media reviews;
·
internal engagement with subject matter experts;
·
external engagement with investors and ESG analysts;
and
·
verification and finalisation.
Governance, including risk management, was
automatically considered as material.
The results of the materiality assessment are
set out in the matrix published below.
This includes our most material issues, as well
as a range of additional relevant issues that we are also
proactively managing. The matrix replaces the SASB Semiconductor
Risk Matrix considered in 2022. The Group continues to report on
sustainability topics following the Semiconductors Sustainability
Accounting Standard 2023-12. Further details can be found in the
Appendix.
During the assessment, external stakeholders
shared additional comments on three areas:
·
product impacts: the low-emissions nature of the business and
the demand for further disclosures on the positive impact of our
products;
·
R&D and innovation: as a business at the forefront of
technology, the need for a set of KPIs to monitor progress in this
area; and
·
governance: investors are placing further scrutiny on a
number of ESG topics, such as talent attraction, development and
retention or carbon emissions.
Material
sustainability issues
These are the sustainability issues that are
most important to our business and key stakeholders. Although our
sustainability activities cover a wide range of topics, our effort
is focused on these.
1. Economic performance and impact
2. R&D and innovation
3. Compliance, business ethics and
transparency
4. Talent attraction, development and
retention
5. Product impacts
6. Value chain disruption
7. Cybersecurity
8. Responsible supply chains
9. Employee engagement and wellbeing
10. Climate risks and opportunities
11. Diversity, equity and inclusion
12. Meeting customer standards
Focus areas in
2024
·
ESG Steering Committee functional leads to review in detail
the recommendations of the materiality assessment to inform and
identify areas of improvement and next steps.
·
Update our ESG Policy taking into account the outcome
of the materiality assessment.
·
Agree carbon emissions baseline based on 2023 data, identify
actionable targets and develop a plan.
·
Continue our focus on recruitment, talent management
and retention to support our growth strategy.
Alphawave Semi
joined the UNGC in July 2023.
The Group supports the UN SDGs and through
our existing programmes and technologies we contribute to progress
against five of the 17 goals in the following ways:
Highly engaged
and diverse workforce
UN SDG 4 QUALITY EDUCATION
UN SDG 5 GENDER EQUALITY
UN SDG 8 DECENT WORK AND ECONOMIC
GROWTH
Quality education
Alphawave Semi fosters future innovators through
our support for science, technology, engineering and maths (STEM)
subjects, particularly amongst female students. This includes our
community engagement activities, internship programme,
collaboration with universities and our recent partnership in
Canada with Let's Talk Science.
Gender equality
Alphawave Semi takes equality and equal
opportunity for all employees very seriously. In line with our
corporate values, we conduct business ethically, honestly and in
full compliance with applicable laws and regulations.
This applies to every business decision in every area of the
Company worldwide. Our Equal Opportunities and Dignity at Work
Policy and Code of Ethics and Business Conduct provide a solid
framework to ensure all related activities are fully
compliant.
We are making efforts to raise awareness amongst
women, both inside and outside the Company, of the exciting careers
in engineering.
Decent work and economic
growth
As a business built on innovation and
leading-edge technology, we recognise the importance of investing
in the development of our employees. Alphawave Semi is committed to
employing and developing those people who have the necessary
skills, experience and values to excel in their role. The Company
is also making efforts to develop the talent of the future and our
internship programme and learning and development activities are
key to this.
Leading wired
connectivity IP and products
UN SDG 9 INDUSTRY, INNOVATION AND
INFRASTRUCTURE
UN SDG 13 CLIMATE ACTION
Industry, innovation and
infrastructure
Innovation is at the core of our business and we
seek to sustain a healthy level of investment in the development of
leading-edge connectivity technology and products. Our technologies
support infrastructure development and value creation from the
adoption of AI. Our R&D approach and close collaboration with
foundry partners, customers and ODMs, ensure we remain at the
forefront of connectivity technology.
Climate action
Our connectivity technology helps to reduce the
power consumption of data centres, as well as minimise the number
of chips required.
Although fabless, we seek to reduce our carbon
footprint using renewable energy in those locations where it is
available and offset all travel-related CO2
emissions.
Increasing
long-term returns and investment in high margin revenue with strong
cash flow generation
UN SDG 9 INDUSTRY, INNOVATION AND
INFRASTRUCTURE
Industry, innovation and
infrastructure
As part of our strategic objectives, we reinvest
cash in the organic development of new connectivity technologies
and products. We seek to maintain a focused and sustained
investment in the R&D of leading and lower power connectivity
technologies aiming to solve the hardest problems.
Responsible and
longstanding relationships
UN SDG 8 DECENT WORK AND ECONOMIC
GROWTH
Decent work and economic
growth
We expect all of our major suppliers to comply
with minimum standards relating to impacts on human and labour
rights, health and safety, and the environment. The Company is
committed to fair wages, healthy and safe working conditions,
respect for human and labour rights, and honest relationships with
both customers and partners in the supply chain.
This is in addition to our support of the Ten
Principles of the United Nations Global Compact on human rights,
labour, environment and anti-corruption.
Our
people
Context
Building upon the effort made in 2022, 2023 was
a pivotal chapter in our journey, marked by the continued
integration of our newly acquired teams. We aim to enhance
cohesion, productivity and innovation across the entire
organisation. Whilst our headcount grew more slowly this year, we
continued to add capability in our teams in support of our growth
strategy. Our closing headcount grew from 695 in 2022 to 829 as of
31 December 2023. In 2023, we opened new offices in Pune, India and
Ottawa, Canada.
Management
approach: nurturing excellence through people-centric
values
We firmly believe that our people are the
driving force behind our success. Guided by a robust management
approach, we seek to prioritise the wellbeing, development and
engagement of our employees. This commitment is overseen by the
Vice President of PPC and supported by a dedicated PPC team based
in each of our regions.
The management team interacts daily with
employees and operates a dedicated PPC function at our key sites.
We have 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. Our approach is characterised by the following key
pillars:
Customised human resource
policies
Our HR team is dedicated to the application of
human resource policies tailored to reflect local legal
requirements, business priorities and labour market nuances. By
seeking to ensure compliance while adapting to the unique needs of
different locations, we aim to create a work environment that
respects diversity and fosters inclusion.
Code
of Ethics and Business Conduct
We adhere to a Code of Ethics and Business
Conduct that establishes fundamental standards governing our
behaviour. This includes a strong commitment to labour and human
rights, seeking to ensure that our employees work in an ethical and
respectful environment.
Talent planning and
development
Recognising that our people are our most
valuable asset, we invest in talent planning and development
initiatives. This approach seeks to ensure that our employees and
our business are equipped with the skills and knowledge needed to
thrive in an ever-evolving technological landscape.
Diversity and
inclusion
We recognise the benefits that a diverse
workforce can offer. We actively seek to create an environment
where different perspectives are not only welcomed but celebrated.
Our commitment to diversity is fundamental to fostering innovation
and creativity within our workforce.
Employee engagement and
communication
To align our workforce with our business
objectives, we implement robust engagement and communication
strategies. This seeks to ensure that our employees are
well‑informed, motivated and
connected to the larger vision of the Company.
We undertake annual employee satisfaction
surveys and the CEO has regularly appeared in virtual meetings for
all employees, providing a summary of business performance, and
addressing questions on a wide range of topics.
Knowledge sharing and
collaboration
We encourage a culture of knowledge sharing and
collaboration, believing that collective intelligence fuels
innovation. Our employees are empowered to share ideas, collaborate
across teams, and contribute to the continuous improvement of our
operations.
Employee wellbeing
We strive to create a supportive environment
that prioritises the physical and mental health of our workforce.
By doing so, we seek to foster a workplace where our employees can
thrive both personally and professionally.
Reward and recognition
We recognise high performance through effective
and targeted compensation, as well as benefits programmes that
enable our employees to share in the value they create.
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
on the foundations of diversity and inclusion, where our employees
can share their ideas and concerns.
Working conditions and employment
rights
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.
We support internationally recognised human
rights, as laid out in the Universal Declaration of 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.
We have a formal grievance escalation procedure
which is referenced 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).
Closing
headcount by region
North America | 43%
EMEA | 9%
APAC | 48%
Diversity
Total employees
gender diversity
Male | 81%
Female | 19%
Senior
management gender diversity
Male | 92%
Female | 8%
Board gender
diversity
Male | 60%
Female | 40%
Equal opportunities
Our Equal Opportunities and Dignity at Work
Policy (see www.awavesemi.com) 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 www.awavesemi.com.
Number of employees
FY 2023
|
Female
|
Male
|
Total
|
Board
|
4
|
6
|
10
|
Total employees
|
160
|
669
|
829
|
Senior management1
|
1
|
10
|
11
|
|
|
|
|
FY 2022
|
Female
|
Male
|
Total
|
Board
|
4
|
6
|
10
|
Total employees
|
141
|
554
|
695
|
Senior management1
|
1
|
11
|
12
|
1. Senior management diversity
reflects the composition of the leadership team, including the CEO
and the Executive Chair.
UN SDG 4 QUALITY EDUCATION
UN SDG 5 GENDER EQUALITY
UN SDG 8 DECENT WORK AND ECONOMIC
GROWTH
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 www.awavesemi.com).
Key
initiatives
Employee wellbeing
The wellbeing of all our employees is important
to the Company. During 2023, our employees continued to work
following a hybrid model, working remotely and in our
offices.
Number of
employees (closing)
829
FY
2022: 695
Employee
turnover
7%
FY
2022: 10%
Gender
diversity
19%
FY
2022: 20%
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; for example, health
check days, assistance programmes and access to wellness courses
such as yoga and meditation.
We have in place a Right to Disconnect Policy
(see www.awavesemi.com)
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 there is
an emergency and/or another legitimate reason (examples of which
are provided in the policy).
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. 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 also has an employee education
programme that reimburses employees upon successful completion of
relevant courses. Employees identify their learning and development
needs on a regular basis (both technical and non-technical) and
agree these with their line manager.
In 2023, we added over 20,000 courses to our
Global HR system covering a broad range of competency and technical
training needs.
Alphawave
University - A session with our Senior Independent Director Jan
Frykhammar
Jan Frykhammar was the main speaker in a virtual
meeting with employees, part of the Alphawave University programme.
Jan shared valuable insights gained as an experienced CFO.
He discussed his views on performance management, risk
management and the importance of establishing a clear link between
the present and mid-term ambitions. Jan also discussed the
importance of culture in organisations and how all employees share
a joint responsibility for success.
Leadership development
2023 was the second year of our Board mentoring
programme. This programme cultivates leadership excellence within
our organisation. By pairing experienced Board members with
leaders, this programme fosters a unique mentorship dynamic that
transcends traditional hierarchical structures. Through
personalised guidance, seasoned leaders can impart strategic
insights, industry knowledge and leadership skills to mentees,
contributing to their professional growth and
development.
The mentorship programme plays a pivotal role in
shaping a robust leadership pipeline by instilling a strong sense
of organisational culture, values and strategic vision.
As mentors share their experiences and expertise, they support
the next generation of leaders, fostering a collaborative and
forward‑thinking leadership
ethos that benefits the entire organisation.
Diversity and
inclusion
We believe in fostering an inclusive environment
where every individual, regardless of gender, background or
ethnicity, can thrive. We are committed to supporting community
programmes aimed at encouraging children, especially girls, to
explore and pursue STEM fields. By investing in these initiatives,
we hope to contribute to the development of a diverse talent
pipeline and inspire the next generation of leaders.
In 2023, for example, we launched two new
D&I initiatives. We started a partnership with Let's Talk
Science in Canada, to encourage girls to get into engineering and
ultimately take engineering programmes we hire from. Let's Talk
Science is an award-winning, national, charitable organisation,
focused on education and outreach to support youth development.
They create and deliver a comprehensive suite of unique learning
programmes and services that engage children, youths and educators
in STEM.
In addition, we launched a women's mentoring
programme within our organisation, recognising the importance of
empowering women to excel in their careers. These initiatives
reflect our dedication to fostering diversity, equity and
inclusion. Our two largest locations, India and Canada,
now have dedicated gender diversity initiatives in place.
Our internship programme is also part of our D&I
initiatives.
The majority of our independent Board members
are women and 19% of our employees are female (FY 2022:
20%).
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
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 www.awavesemi.com.
Alphawave
University - A session with our CEO, Tony Pialis
Tony Pialis, our CEO, was the main speaker in a
virtual meeting with employees, part of the Alphawave University
programme. Tony shared his background and early experiences as an
entrepreneur in the semiconductor industry as well as Vice
President of Mixed-Signal IP at Intel. He shared with employees his
vision and ambition for the future of the business and how
employees can be part of the journey. During the event, employees
had the opportunity to ask Tony questions.
Internship programme
Alphawave Semi has internship programmes in
Canada and India, the two countries with the highest number of
employees. During 2023 we successfully hired many of our interns.
As of 31 December 2023, there were 12 interns in the Company (FY
2022: 47).
In Canada, we welcome interns from the
universities of Toronto and Ottawa, and the programme runs for a
period of 12 to 16 months. As of 31 December 2023, there were
eleven in Canada (FY 2022: ten).
The programme seeks to encourage the next
generation of engineers and innovators, giving them 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
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 2023, there
was one intern in India (2022: 37). The programme engages with
universities such as KLE Tech University, the University of Burdwan
and the CVR College of Engineering in Hyderabad. Students come from
different socio-economic backgrounds.
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.
Our compensation programmes include short-term
cash‑based bonus and long-term
share plans that allow us to differentiate levels of reward, based
on critical skills and performance levels. In early 2023, the
Company introduced a performance appraisal process with clear
objectives aligned with the Company objectives.
The majority of our employees participate in our
long-term incentive programme which helps to promote a shared sense
of ownership. The majority of the hires we made in FY 2023 were
given equity incentivization through our long‑term employee share programme.
Non-financial benefits
Employees have access to a variety of
non-financial benefits that contribute to their overall job
satisfaction and wellbeing. These benefits include, amongst others:
flexible work arrangements, such as telecommuting and flexible
hours; professional development opportunities such as training
programmes and educational assistance; and health and wellness
initiatives, including health insurance and access to gym
memberships, as well as access to financial counselling.
We seek to ensure that our teams have the
opportunity to participate in team-building activities and
workshops, fostering a positive company culture. In addition,
employees have access to different work amenities such as remote
work support and massage chairs. Employee engagement initiatives, a
strong emphasis on company culture and values, health check days
with doctors on site and volunteer and community involvement
programmes, contribute to a holistic and supportive work
environment.
The availability of these benefits varies
reflecting geographic location, regional cultures and regulatory
requirements.
Employee engagement and
communication strategies
We implement 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 2023, we undertook our second annual employee
satisfaction survey, which was conducted by 'Great Place to Work'.
The response rate for the Group was 76% (FY 2022: 80%, Canada
and US only) and the feedback from our employees was extremely
positive. Amongst some of the positive messages, our employees feel
that they can make a difference and remain committed to go the
extra mile to get the job done.
The survey also suggested that enhancing
work/life balance and development programmes remain as two of the
key areas of interest for our employees.
The results of the annual survey were presented
back to the Board and employees, and have informed changes to, for
example, the Global Rewards and Recognition Programme, which will
be rolled out in 2024.
The Company is now certified as a Great Place to
Work® in all its main locations (FY 2022: Canada and US
only).
Focus areas in 2024
·
Improve our employee response rate, fostering a workplace
where our team members feel valued, motivated and
empowered.
·
Implement a comprehensive Global Rewards and Recognition
Programme.
·
Implement community outreach initiatives globally focused on
education and healthcare.
·
Implement Company-wide job architecture and compensation
design and strategy.
Environmental responsibility
Context
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 working towards minimising and reducing
our carbon footprint over time.
Although fabless, we are making ongoing efforts
to minimise our carbon footprint and rely on our foundry and OSAT
partners, which are mostly based in Asia, for the fabrication,
testing, assembly and distribution of our products.
We intend to use FY 2023 data to baseline our
carbon footprint and identify opportunities to reduce carbon
emissions further.
Management
approach
Responsibility for environmental performance
sits with the Board. We govern our environmental responsibility
through the application of our ESG Policy, which was approved in
early 2023 and addresses our key priorities.
The Company seeks to minimise and gradually
reduce its carbon footprint through a combination of emission
reduction and energy efficiency initiatives and the use of carbon
offsets.
In addition to the environmental reporting in
this section we make further disclosures following the
Semiconductors Sustainability Accounting Standard version 2023-12
(see SASB table in the Appendix).
Governance
The Board has overall accountability for the
management of climate-related risks and opportunities.
UN SDG 13 CLIMATE ACTION
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 climate‑related and environmental activities.
Our Global Head of Investor Relations is also
responsible for leading our climate change agenda and managing our
policies and practices across sustainability and ESG matters.
Our Global Facilities Manager is responsible for all our
facilities and our IT Director is responsible for our IT resilience
and IT end‑of-life
policies.
Strategy
The delivery of our technology to customers is,
in certain instances, through virtual and not physical means.
Our value chain has worked effectively through exceptional
circumstances, such as 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. However,
carbon pricing policies and the cost of energy can have some impact
in the running costs of our business.
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 did not affect the business, its strategy and financial
performance in 2023, and are not expected to have a material
impact on the longer‑term
viability of the Group.
Further, 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.
Metrics and targets
For the third 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
requirements'. 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. As a fabless business we outsource the
production of semiconductors to leading foundries. In line with our
fabless peers, we currently have no data from the foundries on the
emissions relating to the manufacturing of our products or our IP
embedded in customers' products which would be very complex to
calculate. In addition, we use the intensity ratio per employee as
defined in the table below.
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 2023 reporting year, including all our locations in 2023.
Israel was not included in 2022. In 2023 we moved to larger offices
in Pune and Ottawa, resulting in higher Scope 2 emissions. Israel
was not included in the reported 2022 emissions.
Scope 1 includes emissions associated with gas
consumption. Scope 2 includes emissions associated with electricity
consumption. The increase in Scope 1 and Scope emissions was mainly
driven by the increase in our headcount and the square footage of
our offices. 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. In our 2023 Scope 3 emissions we have for the first time,
included those from outsourced logistics, commuting and computing.
This resulted in an increase in excess of 1,600 metric tonnes. In
addition, due to the increase in our headcount and level of
business activity, emissions related to travel increased by over
800 metric tonnes. These two elements represent over two thirds of
the overall increase in 2023. In 2024 we will be analysing in
further detail our 2023 emissions to establish a baseline carbon
footprint from which we can identify opportunities for improvement
over the short, medium and long term and assess the need for more
specific reduction goals and targets.
|
|
Baseline
|
Streamlined Energy and Carbon
Reporting
|
2022
|
year 2023
|
In metric
tonnes CO2e
|
|
|
Total Scope 1 emissions (natural gas)
|
208.9
|
378.7
|
Total Scope 2 emissions (electricity
consumption)
|
341.5
|
1,111.5
|
Total Scope 3 emissions (transmissions and
distribution, non-controlled electricity, hotel stays, homeworkers,
computing, upstream logistics air and road, well to tank,
commuting, flights, hire car, taxi and grey fleet
travel.)
|
601.7
|
3,452.6
|
Total gross
(Scope 1, 2 and 3) location-based emissions
|
1,152.1
|
4,942.8
|
Intensity
ratios
|
|
|
tCO2e (gross Scope 1, 2 and 3) per
employee
|
1.78
|
5.96
|
tCO2e (gross Scope 1, 2 and 3) per
US$m revenue1
|
nm
|
15.3
|
Underlying
energy consumption (kWh)
|
|
|
Total global
energy consumed
|
2,618,460
|
5,685,827
|
Total UK energy
consumed2
|
n/a
|
n/a
|
UK-based
emissions
|
nm
|
nm
|
UK-based energy
consumption
|
nm
|
nm
|
1. tCO2e (gross
Scope 1, 2 and 3) per US$m revenue reported as nm in 2023 and 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 the US. Considering the annualised
contribution of these locations allowed for a more meaningful
tCO2e (gross Scope 1, 2 and 3) per employee
comparison.
2. UK energy consumed in 2023
and 2022 was calculated based on the kWh for home-working and it
represented an insignificant portion of the total energy
consumed.
We are gradually rolling out activities to
reduce our GHG emissions: actively managing e-waste with robust
product lifecycle management programmes for our computer and IT
resources, reducing unnecessary business travel, locating our
offices in energy-efficient buildings and, where possible, sourcing
from renewable energy. In 2023 we made the decision to relocate our
offices in Bangaluru to newly built premises that are more energy
efficient. The relocation will take place in 2024.
In addition, we are also offsetting our GHG
emissions from travel included in Scope 3.
Our reporting is consistent with the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). We provided the 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. The Directors
believe this is not necessary for an understanding of the Company's
business at this stage. In 2024 we will evaluate the additional
requirements and associated costs to assess the resilience of the
organisation under different climate-related scenarios. Following
this evaluation, we will make a decision on whether a quantitative
risk assessment should be prioritised and the timing if
appropriate.
See our full compliance statement in the
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 limited and not currently classified as a
significant risk.
The Group has not identified any short-term
direct 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.
Short, medium
and long-term time periods
Short term | 2021-2030
Medium term | 2021-2040
Long term | 2030-2050
Climate-related
risks and opportunities related to the transition to a low-carbon
economy
Risks
|
Opportunities
|
Policy and legal | low risk, medium to
long term
|
Resource efficiency | low risk, medium
to long term
|
In 2023, we undertook our first business
materiality assessment
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.
|
We are actively managing e-waste, reducing
unnecessary business travel and, when necessary, relocating our
offices into energy-efficient buildings.
|
Technology | low risk, medium to long
term
|
Energy source | low risk, medium to long
term
|
Alphawave Semi is at the forefront of wired
connectivity technology.
Our leading-edge technology advances push the
boundaries of wired connectivity capabilities, enabling data to
travel faster, more reliably and using lower power.
Our focus on connectivity and R&D investment
seeks to ensure we remain 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.
All our premises are leased. Our offices in
Canada (Toronto and Ottawa) and the US (Milpitas and San Jose) are
based in modern, smart buildings with energy-saving systems and
modern HVAC systems.
In 2023 we selected a new location for our
office in Bangalore; a highly efficient building with climate
resilience procedures in place.
|
Market | low risk, medium to long
term
|
Products and services | medium risk,
medium to long term
|
As a fabless business, energy costs are not a
major direct cost driver.
Our business has a low risk exposure from
scarcity of 'rare Earth materials'.
Higher energy costs could potentially impact the
direct costs of our manufacturing partners and result in higher
cost of goods sold. Our foundry partners are the leading
manufacturing companies in the industry and continuously invest in
the adoption of next generation manufacturing
technologies.
|
The semiconductor industry is well placed to
support the transition to a lower carbon emission economy.
Our technology enables semiconductors with lower power
consumption, contributing to a more energy‑efficient digital infrastructure, such as data
centres, 5G base stations and other data-intensive
applications.
Our technology contributes in different ways to
reduce the power consumption of data centres.
|
Reputation | low risk, long
term
|
Markets | medium risk, long
term
|
Although our direct carbon footprint is
relatively small compared to other business activities, we seek to
reduce our carbon footprint and undertake appropriate efforts to
not fall short of best practice amongst fabless semiconductor
companies in our sector and our largest customers.
We are planning to use our 2023 carbon emissions
baseline to set a clear level from which we can define specific
environmental goals.
|
We work with the leading companies in the
semiconductor industry, leading telecommunications business,
technology companies as well as hyperscalers. These companies have
a strong focus on reducing their carbon footprint and are investing
in new technologies.
Our connectivity technology aims to address the
hardest‑to‑solve problems for customers in digital
infrastructure markets.
Our new range of
opto-electronics and increased AI and data centre custom silicon
business represent new revenue opportunities for our low power
technologies, contributing towards reducing the power consumption
of data centres and AI infrastructure.
|
Related to the
physical impact of climate change
|
|
Acute risk (event driven) | low to
medium risk, medium to long
term
|
As a fabless semiconductor company, our own
operations are unlikely to face any specific material risks as a
result of the
physical impacts of climate change, such as
property damage due to extreme weather events (i.e. changes in
temperature, wind patterns or water‑related).
We have not yet assessed current and future
climate risks, acute and chronic, in our most critical locations.
In 2024 we are intending to evaluate additional requirements and
costs involved in such assessment.
|
All our employees can work remotely and the
majority of our offices are located in modern offices in city
centres.
Our manufacturing partners have implemented
multiple initiatives to reduce their carbon footprint, review water
and energy usage, and understand and manage the effects of climate
change on their own operations. We work with leading companies such
as TSMC, Samsung and Intel which follow the recommendations of the
TCFD and have initiatives in place to manage
these risks.
|
Chronic risk (long-term shifts in
climate patterns) |
low
to medium risk, medium to long term
|
In the longer term, changes in greenhouse gas
emissions regulations could result in increased costs in our supply
chain due to higher compliance, raw materials or energy costs to
our suppliers.
|
It could potentially become more difficult or
expensive to insure certain locations.
|
Dependency on natural, human and
social capital
Climate change would not create any new direct
dependencies on natural, human or social capital.
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.
Focus areas in 2024
·
Develop further training, define process for data collection
and reporting requirements to support the collection and monitoring
of emissions across the Group's locations.
·
Set emissions baseline using 2023 data and develop
emission-reduction strategies for our main locations.
·
Evaluate additional requirements and costs involved in
the development of climate-related scenarios.
Supply chain
Context
Our Silicon Operations team is responsible for
managing the manufacturing process that is outsourced to foundries
as well as semiconductor assembly and test (OSAT)
partners.
As a fabless business, our commercial success is
reliant on our ability to manage our supply chain. As such, we are
not only focused on minimising any reputational, commercial or
contractual harm but also to identify and proactively manage
related sustainability impact.
As well as minimising potential disruption
risks, this also includes 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 and labour
programmes in place.
Management
approach
We outsource the production of our
semiconductors to the leading companies in the industry, such as
TSMC. These companies 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/
Our Vice President of Silicon Operations is
responsible for all manufacturing-related activities, including the
management of our foundry, assembly and test partners. Board-level
responsibility for supply chain lies with our CEO.
We manage our supply chain by:
·
requiring all our fabrication, assembly and test partners to
be ISO 9001 certified;
·
the categorisation of partners as critical and
non‑critical;
·
screening all partners against our manufacturing partner
assessment survey and undertaking on-site audits for a limited
number of suppliers, mainly those categorised
as critical;
·
carrying out annual audits (audit-light approach) of our
major partners using the assessment survey checklist including a
focus on 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;
·
jointly reviewing the annual audits with our partners,
including any recommended corrective actions. Any major
discrepancies may require a re‑survey to verify that the required corrective
actions have been implemented;
·
significant non-compliance quality events are addressed by
issuing Corrective Action Requests (CARs). These actions identify
root cause, implement permanent corrective actions, and are
followed by monitoring its effectiveness;
·
engaging with those suppliers which have not met our
requirements to resolve and to raise their level of performance to
acceptable levels; and
·
carrying out weekly business and performance reviews with our
regular partners, as well as in-person bi-monthly business reviews
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 the products supplied meet all
requirements.
Performance
In 2023, we performed 14 audits (FY 2022: 11
audits), covering the majority of our manufacturing partners as
well as our main foundry partner. The average score of the audits
undertaken in 2023 was 99%. The lowest score achieved was 94.7%.
Three of the 14 audits were undertaken onsite and the remaining
through self-assessment.
During the year we raised two CARs and sought to
obtain full resolution. In one of the cases we achieved this with
enhanced part marking, additional training and
instructions.
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.
In FY 2023, average OTD was 100% which was in line with 2022
(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) in 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 Minerals Policy in place which is available
on our website: https://awavesemi.com/custom-silicon.
Alphawave Semi extends this obligation to our
suppliers, requiring them to reasonably assure that the tin,
tungsten, tantalum 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.
In 2023 we did not identify any instances where
tin, tungsten, tantalum and gold that are integrated into our
products have supported armed groups in the DRC or adjoining
countries (2022: nil). All our 3TG minerals are from Conflict
Minerals compliant smelters.
Environmental
management
It is important that our fabrication partners
demonstrate responsible environmental standards. 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
aim to have an ever-decreasing impact on the
environment.
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 2024
·
Continue to deliver high levels of operational performance
and maintain our average OTD.
·
Ongoing identification of possible areas of
improvement.
UN SDG 8 DECENT WORK AND ECONOMIC
GROWTH
Intellectual property
Context
The protection of intellectual property (IP) 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 which we work hard to
maintain.
Management
approach
We are advancing wired connectivity technology
for digital infrastructure. Given the rapid evolution of technology
and increasingly demanding 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 2023 we expensed US$78.2m of R&D
activities or 24% of revenue (FY 2022: US$69.4m or 37% of
revenue).
Our Chief Technology Officer (CTO) works with
Alphawave Semi innovators to define our technology vision and
roadmap and to drive innovation across the Group.
The CTO chairs the IP Committee, and its members
include representatives from our Engineering, Marketing and Legal
teams. The Committee meets on a monthly basis.
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.
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;
·
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 commitment to fostering
innovation and supporting 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$4,000 bonus shared equally among inventors.
Alphawave Semi innovation
award
In 2023 the Group awarded its second innovation
award. The award recognised four innovators for an invention that
improves the robustness of our DSP for high-speed connectivity in
some of the industry's most demanding applications. We look forward
to recognising many more of the outstanding innovations across the
Company in 2024 and beyond.
UN SDG 9 INDUSTRY, INNOVATION AND
INFRASTRUCTURE
UN SDG 13 CLIMATE ACTION
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
CO2‑eq in 2020,
equivalent to 0.9% of energy‑related GHG emissions or 0.6% of total GHG
emissions1. Connectivity accounts for 20% to 40% of the
power in data centres, and our technology is helping to reduce it
by approximately 25% to 40%.
Reliable and power-efficient data transmission
sits at the core of industry efforts to improve energy efficiency
and help reduce carbon emissions. As published by the Global
Semiconductor Mobile Association in its State of the Industry on
Climate Action 2022 report, AI, ML and virtualisation are helping
to optimise power use in equipment, centralising network resources
(enabling synergies) and avoiding unnecessary heating or
air-conditioning2. Our technology enables the flow
of data necessary to enable this.
Our technology reduces the number of components
needed in data centres and helps reduce power consumption in a
number of ways:
·
the required reach (or distance of data transmission) enabled
by our transceivers eliminates the need for additional receivers or
retransmitters;
·
our R&D contributes to reduce the transceiver low power,
which helps to keep the overall data centre power low;
·
achieving higher per-lane data rates (for example from 112G
to 224G) as well as more advanced technology nodes (for example
from 5nm to 3nm) significantly reduces the energy-per-bit
transmitted. On average the adoption of a smaller manufacturing
node achieves power savings of between 25% to over 40%3
compared to the previous node;
·
our chiplet architectures allow for new low-power computing
architectures resulting in power savings of approximately 40%
compared to monolithic products (HBM is less power intensive than
DDR; more in‑package
integrated compute replaces chip-to-chip communication with ultra
low-power die-to-die communication); and
·
our CXL and higher-speed PCIe allows for aggregation or
sharing of memory or storage, reducing the amount of memory
required for data centre compute by approximately 30%, lowering the
environmental footprint of memory manufacturing.
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. TSMC focuses on power and
efficiency with the new 2nm node | Digital Trends; Samsung's 3nm
chips reduce power consumption by up to 45% - Inceptive
Mind
Minimisation of negative product
impacts
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.
Focus areas in 2024
·
Ongoing development of technologies that enable
AI.
·
Increase collaboration across teams to foster
more innovation.
Investing in
the future of AI compute
In 2023, we continued to invest in key
connectivity technologies for AI compute, such as PCIe6 and
PCIe71, CXL2 and UCIe3 (Universal
Chiplet Interconnect Express). These investments, in combination
with our entry into the ARM Total Design ecosystem position us to
be one of very few companies able to deliver optimised custom
silicon for AI compute.
Power
consumption breakdown in data centre
20%-40%
of the data centre power consumption relates
to connectivity.
25%-40% Savings
Our
connectivity technology enables power savings of between
25%-40%. That is approximately 10% power
savings of the overall data centre power consumption.
Source: Company
1.
https://pcisig.com.
2. HOME | Compute Express
Link.
3. Home | My Site
(uciexpress.org).
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 the national legislation of our host
societies, including relevant anti‑bribery and corruption laws.
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
Our Code of Ethics and Business Conduct
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
www.awavesemi.com. Our Code
of Ethics and Business Conduct is also available at www.awavesemi.com.
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.
Below we set out some of the additional issues
we actively manage, in line with our corresponding
policies.
Human and labour
rights
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
seeks to remain 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 www.awavesemi.com.
Anti-bribery and
corruption
Compliance with global anti-bribery and
corruption (ABC) legislation is vital to our approach to business
dealings and forms the basis of our Anti-Bribery Policy. We 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 are 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 at www.awavesemi.com.
Anti-fraud and
dishonesty
Compliance with our Anti-Fraud and Dishonesty
Policy ensures transparency and accountability in how our
administrative processes are carried out and the decisions we make.
This policy includes topics such as fraud, theft and abuse of
position.
The Company seeks to foster honesty and
integrity in its entire workforce. Directors and staff are expected
to lead by example in adhering to policies, procedures and
practices.
Equally, customers and external organisations
(such as suppliers and contractors) are expected to act with
integrity and without intent to commit fraud against the
Company.
The Company provides clear routes by which
concerns may be raised by Directors, employees and associates.
For further details see our Anti-Fraud and Dishonesty
Policy at www.awavesemi.com.
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
such issues in good faith will be supported by the Company. The
Company seeks to 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. Our Whistleblowing Policy is available to all
employees.
In 2023 there was an incident reported through
these whistleblowing channels (2022: no incidents).
The Company engaged an independent third party to investigate
the accuracy of the reported incident. The report was determined to
be accurate and as a result the employment contract of one of our
employees was immediately terminated.
In addition, the Company is planning to
introduce increased background checks on contractors and
third-party vendors.
Details can be found in the Company's
Anti-Bribery and Whistleblowing Policy.
Overall responsibility for managing the risk of
fraud sits with the Chief Financial Officer. Day-to-day
responsibility has been delegated to the Senior Director of Group
Finance who acts on behalf of the Chief Financial
Officer.
For further details or to receive a copy of the
policy please email info@awavesemi.com
Performance
In 2023, all new employees covered our Code of
Ethics and Business Conduct as part of their induction. In
addition, during the year, all employees were required to read and
acknowledge our key policies.
During the year we updated our Policy Against
Trafficking of Persons and Slavery and reviewed some of our key
policies, such as the Anti‑Fraud and Dishonesty Policy and our
Anti‑Bribery and Corruption
Policy.
Focus areas in 2024
·
Annual review of relevant policies.
·
New Whistleblowing Policy.
·
Review of additional training requirements.
UN SDG 5 GENDER EQUALITY
UN SDG 8 DECENT WORK AND ECONOMIC
GROWTH
UN SDG 9 INDUSTRY, INNOVATION AND
INFRASTRUCTURE
IT
and cybersecurity
Key areas of
focus in 2023
In 2023, our IT function successfully integrated
our IT support systems, following two major business acquisitions
in Q4 2022. This will help ensure seamless service delivery across
our expanded enterprise. A major achievement was the integration of
applications, where we streamlined multiple platforms into a
unified suite, enhancing efficiency while optimising our licensing
framework. This effort not only rationalised costs but also
fostered a more cohesive user experience.
Our efforts are managed by our IT Director, who
oversees a comprehensive, multidisciplinary programme involving
information security, IT and physical security. The IT Director
reports directly to the Senior Vice President, Engineering and
regularly updates our Board of Directors on our cybersecurity
performance and risk profile.
We have made significant progress on the
integration of our network. We implemented Zero Trust VPN and Magic
WAN products from Cloudflare, significantly enhancing our network
infrastructure. This strategic implementation not only reduced
costs and simplified operations but also enabled the Group to
enforce robust network firewall policies across our global network,
ensuring superior security and connectivity.
Central to our integration strategy was the
implementation of centralised authentication and Single Sign-On
(SSO) solutions, simplifying user access and further reinforcing
security. In 2023, we also made considerable progress in
safeguarding our digital assets and improving our IT
infrastructure.
These steps towards implementing a unified IT
infrastructure have significantly enhanced our operational
resilience and positioned us to leverage technology for scalable
growth.
Overview of
cybersecurity landscape - management approach
Within our corporate security framework,
Alphawave Semi upholds a detailed set of policies for information
security management, aligned with the ISO/IEC 27001 standards. In
addition, our cloud-based Software‑as‑a‑Service
(SaaS) applications are regularly audited to ensure adherence to
various standards covering aspects such as security, availability,
processing integrity, confidentiality and privacy.
We also engage in annual third-party penetration
testing of our business and customer networks, along with
continuous vulnerability scans of servers, applications, endpoints
and network equipment. Any vulnerabilities categorised as critical,
high or medium risks are addressed promptly. Moreover, we play an
active role in global and professional groups focused on shaping
future standards for a more secure, safe and
privacy‑conscious digital
environment, such as the Institute of Electrical and
Electronics Engineers.
Group-wide Security policies and IT controls are
regularly reviewed and updated by the Security Council, which is
chaired by our IT Director. Our policies seek to address the
regulatory environment, including data privacy regulations, and to
mitigate the evolving cybersecurity threat.
All our existing policies and procedures are
assessed regularly by our external auditors, as well as third-party
consultants. We maintain cyber-liability insurance that covers
certain liabilities in connection with security breaches or related
incidents.
In 2023, Alphawave Semi did not experience any
material information security breaches (2022: zero). We also
addressed cybersecurity scenarios in our resiliency planning and
documented them through business continuity plans. Our Incident
Response Programme facilitates an integrated response to potential
cybersecurity events.
Security training and
awareness
We are committed to regularly improving our
employees' understanding and awareness of security and privacy
matters. This is in response to the rising number of significant
cyber-attacks, and with the aim of safeguarding the confidentiality
and security of our employees, customers and other interested
parties. This is achieved through:
·
implementing regular, quarterly email phishing exercises that
encompass a large portion of our workforce, equipping them with
essential skills for cyber self-defence; and
·
mandatory annual training sessions for all employees on data
security and privacy awareness. These sessions include
comprehensive coverage of topics such as cybersecurity, phishing,
data protection and privacy concerns.
Focus areas in 2024
·
Formation of a dedicated Security team.
·
Rollout of a new enterprise system.
Our new
Security team
In 2024, we plan to establish a dedicated team
at the forefront of our cybersecurity initiatives, focusing on
enhancing compliance and IT controls. Their expertise and
specialised focus will enable us to implement more robust security
measures, conduct in-depth risk assessments and respond more
effectively to potential threats.
This is aligned with our broader goal of
ensuring the highest levels of data protection and network
security, thereby maintaining the trust and confidence of our
clients and stakeholders.
We believe that these enhancements in our
cybersecurity framework will significantly contribute to the
resilience and success of our organisation in the digital
era.
Community engagement
Context
2023 was the second year of our community
engagement programme. As an organisation, it is important to us
that we engage with the communities in which we operate.
Our corporate giving programme provides
additional support by matching employee donations to local
charities and organisations.
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
Our Community Involvement Global Council
includes local representatives from all our locations, who meet
remotely on a bi-monthly basis. The purpose of the Global Council
is to ensure that local engagement is aligned with our principles
and values, to co-ordinate Group-wide initiatives and to share
experiences.
Responsibility at Group level sits with our
Global Facilities Manager who is part of the People, Places and
Culture function.
The goal of our community engagement programme
is to support local and not-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
In 2023, the Company donated approximately
US$37,000 globally to support local organisations and charities
(FY 2022: US$30,000).
Additionally, our internship programmes in India
and Canada work with local universities and organisations to make a
positive contribution to the promotion of science, technology,
engineering and mathematics (STEM) education and careers in
engineering. The objective of this effort is to support the next
wave of innovators and expanding the talent pipeline. For more
information see the Our People section.
In 2023 we rolled out Keen to Help, an external
platform through which our employees can request and search for
volunteer opportunities that are aligned with our Company values
and community engagement programme goals.
In 2023, we also hosted our second 'bring your
kids to work' day in Toronto and Ottawa. As in the prior year there
were multiple creative activities with a link to
science.
Alphawave Semi is partnering with the Dream
School Foundation (DSF) in India, providing educational support to
unprivileged children. Alphawave Semi and DSF initiated a new and
effective programme named TYDE (Transformation Youth Development
Engagement). This programme supports high school and
college‑going students and
helps in their all‑round
development.
Forward focus areas in
2024
·
Track number of volunteering hours focused on community
engagement activities.
·
Assign country-specific community engagement
budgets.
·
Encourage employee participation through online tools that
facilitate volunteering.
Alphawave Semi
partnering with the Dream School Foundation in
India
Alphawave Semi has partnered with the DSF in
India, which provides educational support to underprivileged
children. The DSF strives to break the cycle of
socio‑economic vulnerability
faced by children and their families, and help them to help
themselves through the power of education. It helps children and
parents travel the path from 'schools to livelihood'.
Through TYDE we support students from
socio-economically disadvantaged families. It helps students gain
technological knowledge and skills. Alphawave Semi not only
provides financial support but has been involved in the planning
and design of the infrastructure and the selection of the equipment
required. Our volunteers provide intensive mentoring and coaching
as well as providing other support to students.
UN SDG 4 QUALITY EDUCATION
Financial review
In 2023 we delivered another year of strong
revenue growth, up 74% and continued to invest in our leading-edge
engineering capabilities. As a vertically integrated business we
are well positioned to benefit from the long-term investment in AI
and digital infrastructure.
Investing in
future revenue growth
In 2023 we consolidated the teams and
technologies we acquired in 2022 and became a vertically integrated
global semiconductor company. Alphawave Semi is one of the few
companies in the world bringing a full portfolio of connectivity IP
for AI and digital infrastructure.
Building on the strength of our technology
portfolio, we have successfully transformed our custom silicon
pipeline to a higher margin business focused on AI and data centre
solutions in advanced nodes. Our connectivity solutions meet the
increasingly complex bandwidth, latency and power requirements
critical to support the adoption of artificial intelligence. With
our enhanced product portfolio and silicon expertise, we can access
a larger and high-growth addressable market of approximately
US$18bn by 2026, gaining greater scale and enhancing our
competitive position.
During this transition year, we achieved record
bookings of US$383.9m. 71% of these bookings came from IP licencing
and advanced node custom silicon NRE contracts with North American,
European and APAC (non-China) customers. The remaining 29%
came from the legacy lower margin business we acquired in 2022. The
custom silicon contracts that we signed in 2023 give us visibility
to a potential lifetime revenue from silicon production of
approximately US$500m, which is not yet reflected in our bookings
or backlog. First silicon production orders from these
contracts are expected in 2025.
Our financial performance was below our guidance
for the year both on revenue and adjusted EBITDA, mainly due to our
accelerated transition away from our legacy custom silicon business
in China and the timing of revenue recognition on long-term
contracts in advanced nodes combined with our continuing investment
in advanced research and development. Revenue grew 74% year-on-year
from US$185.4m to US$321.7m and we delivered an adjusted EBITDA
margin of 19%, down 6% from 2022.
In 2023 we expensed US$78.2m in the development
of products which will go into production in future years and will
contribute to accelerated revenue growth over the medium term. The
strong investment in our new opto-electronic products and future
revenue growth is reflected in the lower cash and cash equivalents
balance at the end of 2023 of US$101.3m (compared with US$186.2m at
the end of 2022).
2024 will be another year of growth for the
Group as we lay the foundations towards our longer-term strategic
and financial targets. I am confident that with prudent financial
management and the successful execution of our product roadmaps and
customer engagements we are on track to become the next great
global semiconductor company.
Contracted
order book and backlog
2023 bookings totalled US$383.9m, of which
US$274.0m represented IP licensing and NRE orders and US$109.9m
represented royalty and silicon orders. This compares to US$228.1m
of total bookings in 2022. Bookings grew 68% year-on-year,
comprising 109% growth in licensing and NRE orders and 14% 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 2023, representing 34% of the total. It was followed by
25% from China, 21% from APAC and 20% from EMEA 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 not yet recognised as revenue,
excluding potential royalties. At the end of 2023, our backlog was
US$354.9m, 7% lower than the backlog at the end of 2022 of
US$379.7m. Backlog reduced year-on-year due to adjustments of
US$87.3m, of which nearly half came from the backlog acquired
with OpenFive.
Revenues
Revenues for 2023 reached US$321.7m, 74% growth
compared to US$185.4m in 2022:
·
customers - in 2023, we recognised revenues from 103
end‑customers, compared to 80
end-customers in 2022. This included new tier-one customers
licensing our IP as well as legacy customers acquired in 2022.
End-customer revenue concentration marginally decreased during the
year. Our top five end-customers generated 46% of our 2023 revenues
(2022: 47%) or 42% excluding revenues from the WiseWave
subscription deal (2022: 39%); and
·
regions - in addition to WiseWave and VeriSilicon, the
contribution in 2023 from China (59%) was driven by legacy custom
silicon business. Absent this, our regional mix was comparable to
2022. Over the long term, as 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 60% from US$51.4m
in 2022 to US$82.2m in 2023, and APAC (excluding China) revenues
grew 97% from US$17.0m in 2022 to US$33.5m in 2023. We also saw
EMEA revenue grow 28% from US$12.3m in 2022 to US$15.7m in
2023.
We recognised a small amount of royalty revenue
in 2023 based on early production volumes from a specific customer.
Given the long design cycles at our customers, we expect royalties
to gradually increase and contribute to earnings in the medium
term. Further, as we seek to monetise our IP through silicon and
achieve greater revenue scale and higher absolute earnings, we
expect the contribution from IP royalties to be less significant to
our Group results.
Income
Statement
|
IFRS
|
Adjusted
|
US$m
|
2023
|
2022
|
2023
|
2022
|
Revenue
|
321.7
|
185.4
|
n/a
|
n/a
|
Cost of sales
|
(156.4)
|
(60.8)
|
n/a
|
n/a
|
Gross profit
|
165.3
|
124.6
|
n/a
|
n/a
|
Gross margin
|
51%
|
67%
|
n/a
|
n/a
|
EBITDA
|
9.8
|
49.3
|
62.6
|
46.8
|
EBITDA margin
|
3%
|
27%
|
19%
|
25%
|
Operating (loss)/profit
|
(19.4)
|
37.6
|
n/a
|
n/a
|
Operating margin
|
(6%)
|
20%
|
n/a
|
n/a
|
(Loss)/profit before tax
|
(39.5)
|
17.2
|
n/a
|
n/a
|
Net (loss)/profit
|
(51.0)
|
(1.1)
|
11.3
|
6.7
|
Basic EPS (US$ cents)
|
(7.23)
|
(0.16)
|
1.59
|
0.98
|
Diluted EPS (US$ cents)
|
(7.23)
|
(0.16)
|
1.59
|
0.98
|
Cash generated from operations
|
25.5
|
1.0
|
n/a
|
n/a
|
1. For definitions of non-IFRS
measures see Alternative Performance Measures section.
Adjusted
EBITDA
|
Year ended 31
December
|
|
2023
|
2022
|
US$m
|
US$m
|
US$m
|
Net loss
|
(51.0)
|
(1.1)
|
Add/(deduct):
|
|
|
Finance income
|
(3.4)
|
(1.7)
|
Finance expense
|
8.8
|
3.6
|
Loss from joint venture
|
14.7
|
18.5
|
Income tax expense
|
11.5
|
18.3
|
Depreciation and amortisation
|
29.1
|
11.7
|
EBITDA
|
9.8
|
49.3
|
Add/(deduct):
|
|
|
Acquisition-related costs
|
0.7
|
12.7
|
Compensation element of Banias deferred cash
rights
|
8.4
|
1.7
|
Remeasurement of contingent consideration
payable for Precise-ITC
|
0.0
|
4.2
|
Share-based compensation expense
|
40.7
|
15.7
|
Currency translation loss/(gain)
|
3.0
|
(36.8)
|
Adjusted
EBITDA
|
62.6
|
46.8
|
Operating
expenses and profitability
Gross
margin in 2023 was 51%, 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 2022, gross margin was 67%, driven predominantly by our
IP business before acquisitions. Gross margin in 2023 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.
EBITDA1
in 2023 was US$9.8m (3% margin) compared to US$49.3m in 2022
(27% margin). On an adjusted basis, EBITDA in 2023 was US$62.6m
(19% margin) compared to US$46.8m (25% margin) in 2022. The
decrease in adjusted EBITDA margin reflects the early stage of our
migration to a combined IP licensing and silicon business model
through our acquisitions and the scaling of our engineering
capabilities. Adjusted EBITDA was below our guidance for 2023. This
was driven by a combination of low-margin silicon sales from legacy
OpenFive contracts and increased investment in R&D
activities.
Reflecting the continued scaling of the business
and our acquisitions, operating expenses in 2023 were US$184.7m
compared to US$87.0m in 2022.
Research and
development (R&D) expenses in 2023 were
US$78.2m (24% of revenue) compared to US$69.4m (37% of revenue) in
2022. In 2023, R&D expenses included US$12.7m amortisation of
acquired intangibles (US$5.5m in 2022). In 2023 we capitalised
US$54.5m related to our own product development activities,
compared to $7.2m in 2022, the increase reflecting the growth in
investment in our own product development.
Sales and
marketing (S&M) expenses in 2023 were
US$12.8m (4% of revenue) compared to US$4.6m (3% of revenue) in
2022.
General and
administrative (G&A) expenses in 2023 were
US$40.8m (13% of revenue) compared to US$15.5m (8% of revenue) in
2022. G&A expenses in 2023 included an expected credit loss of
US$7.3m based on our assessment of our potential credit loss on
overdue invoices and accrued revenues (US$2.2m in 2022). Excluding
this, our G&A expenses for 2023 were US$33.5m, or 10% of
revenue (US$13.3m, or 7% of revenue in 2022).
The year-on-year increase in R&D, S&M
and G&A expenses was primarily due to the increase in headcount
from 695 full‑time employees
at end 2022 to 829 at end 2023, together with associated software
tool costs which scale with our R&D headcount. In addition, we
invested in our support functions and continue to scale our
finance, HR, legal and corporate marketing teams, reflecting the
increased complexity and geographical spread of the Group to
support our transition to a vertically integrated semiconductor
company.
In the medium term, we anticipate modest growth
in our headcount as we address the opportunities ahead.
Other
expenses in 2023 totalled a US$52.9m.
Share-based payment costs of US$40.7m in 2023 reflect our increased
headcount, as well as one-time grants awarded to new members of the
senior management team who joined us in 2023 and the payment of the
2023 employee bonus in shares rather than in cash. Exchange losses
in 2023 were US$3.0m. US$8.4m of other expenses in 2023 related to
deferred cash rights for the former Banias Labs
employees.
Other expenses in 2022 totalled a credit of
US$2.5m, comprising M&A and professional costs of US$12.7m
related to the acquisitions and the debt funding, US$15.7m
share‑based payment costs,
US$1.7m of deferred cash rights for the former Banias Labs
employees and US$36.8m of exchange gains.
Operating
loss was US$19.4m in 2023, compared to an
operating profit of US$37.6m in 2022 and reflected the decrease in
gross margin and increases in operating expenditures described
above.
For definitions of non-IFRS measures see
Alternative Performance Measures section
Finance
income in 2023 was US$3.4m, compared to US$1.7m
in 2022. The increase was largely driven by cash balances being
invested in interest-bearing accounts and higher interest
rates.
Finance
expense in 2023 was US$8.8m, higher than the
US$3.6m in 2022 due to interest associated with the five-year Term
Loan obtained in October 2022. US$9.5m of finance expense was
capitalised in 2023 as it related to qualifying intangible
assets.
Share of the
post-tax loss of equity-accounted joint ventures
was US$14.7m in 2023, compared to US$18.5m
in 2022.
At the end of 2023, the Group owned 42.5% of
WiseWave (compared to 42.5% at the end of 2022), a 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$14.7m loss in 2023 (US$18.5m loss in 2022). The
five-year subscription licence agreement is being capitalised and
amortised over the life of the agreement by WiseWave.
Tax
expense in 2023 was US$11.5m, being 29% of loss
before tax of US$39.5m.
In 2023 we incurred a net loss of US$51.0m
compared to US$1.1m loss for the year in 2022.
On an adjusted basis, net profit in 2023 was
US$11.9m, compared to US$6.7m in 2022.
The exchange gain of US$10.2m in other
comprehensive income is predominantly a result of the Company, a
GBP‑denominated entity, having
net assets translated into USD, our presentational currency. This
is re-translated again for presentational purposes into USD at the
year end.
Balance sheet,
liquidity and cash flow
At the end of 2023, we held US$101.3m in cash
and cash equivalents and had borrowings of US$220.4m, comprising a
Revolving Credit Facility of US$125.0m, a Term Loan of US$93.8m and
other long-term borrowings of US$1.6m. During 2023, our net debt
position increased from US$24.0m to a net debt position of
US$119.1m as we continued to invest in our business.
During 2023 current trade and other receivables
increased from US$47.1m to US$75.6m. This change was primarily due
to timing of advance payments to foundries to reserve fab capacity
and other prepayments.
Contract assets, where revenue recognition
conditions are met under IFRS 15, but we have not billed or
collected any amount, increased from US$57.0m at the end of 2022 to
US$65.2m at the end of 2023. 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$42.4m of the contract asset balance at the end of 2023 (2022:
US$16.8m).
At the end of 2023 we held physical inventory of
silicon devices with a value of US$11.6m (2022: US$18.1m).
The decrease reflects the fulfilment in 2023 of a large
number of silicon orders booked in 2022.
Current income tax receivables increased from
US$2.9m in 2022 to US$23.5m in 2023 and other current assets
decreased from US$71.5m in 2022 to US$19.0m in 2023. The
significant decrease in other current assets came from a reduction
in prepayments which were unusually high at the end of 2022 due to
payments made to foundries for silicon production that occurred in
2023.
We ended 2023 with aggregate goodwill of
US$309.2m from the acquisitions of Precise-ITC, OpenFive and Banias
Labs. Aggregate goodwill has decreased from our provisional
estimate of US$331.9m in 2022, following the finalisation of the
purchase price adjustment for OpenFive and Alphawave Semi making a
Section 338 election which allowed the OpenFive acquisition to be
treated as an asset deal for US tax purposes. US$10.3m of the
decrease in goodwill relates to the Section 338 election which
reduced deferred tax liabilities by US$15.9m and increased
consideration by US$5.6m. US$12.4m of the decrease in goodwill
relates to the finalisation of the arbitration process to determine
the final consideration due for the OpenFive
acquisition.
At the end of 2023 the carrying amount of other
intangible assets was US$203.3m (2022: US$161.4m). This balance is
primarily due to the technology and IP acquired with OpenFive and
Banias Labs and the capitalisation of our own development
expenditure.
Owned property and equipment increased from
US$13.4m at the end of 2022 to US$20.7m at the end of 2023 due to
increased expenditure on laboratory equipment and prototyping.
Leased property and equipment increased slightly from US$14.6m at
the end of 2022 to US$15.3m at the end of
2023.
Investments in equity-accounted associates,
namely the value of the investment in WiseWave, remains US$nil, 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.
In 2023 we invested US$1.0m in an Israeli semiconductor
company.
During 2023, current trade and other payables
decreased from US$88.7m to US$69.3m. This decrease was
predominantly due to timing differences of payments to
vendors.
Contract liabilities, where we have invoiced or
received money for products or services where revenue recognition
conditions are not met, decreased from US$96.9m at the end of 2022
to US$56.0m at the end of 2023. This decrease was due to the high
order intake for custom silicon products at the end of 2022 where
customers were required to make advance payment ahead of silicon
being shipped to them in the first half of 2023.
Summary balance
sheet
US$m
|
31 December 2023
|
Restated1
31 December 2022
|
Assets
|
|
|
Cash and cash equivalents
|
101.3
|
186.2
|
Other current assets
|
194.9
|
196.6
|
Total current assets
|
296.2
|
382.8
|
Goodwill
|
309.2
|
309.2
|
Other intangible assets
|
203.3
|
161.4
|
Other non-current assets
|
45.8
|
47.2
|
Deferred tax assets
|
12.1
|
2.7
|
Total non-current assets
|
570.4
|
520.5
|
Total
assets
|
866.6
|
903.3
|
Liabilities and
equity
|
|
|
Total current liabilities
|
136.6
|
194.4
|
Loans and borrowings
|
214.8
|
205.2
|
Other non-current liabilities
|
46.7
|
35.5
|
Total non-current liabilities
|
261.5
|
240.7
|
Total liabilities
|
398.1
|
435.1
|
Total equity
|
468.5
|
468.2
|
Total
liabilities and equity
|
866.6
|
903.3
|
1. Restated to reflect the
finalisation of the purchase price allocation on the acquisition of
OpenFive (see notes 12 and 30).
Balance sheet,
liquidity and cash flow
At the end of 2023, our current and non-current
loans and borrowings were US$220.4m, an increase of US$10.2m from
2022 as a result of drawing down an additional US$15.0m against the
revolving credit facility and repayments of the term loan
principal.
In 2023, we generated cash from operations of
US$25.5m compared with US$1.0m in 2022. 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 included 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 in 2022 was US$29.2m.
Working capital in 2022 decreased by US$50.1m,
compared to a decrease of US$41.7m in 2023. The decrease in working
capital in 2023 was primarily due to an increase in trade and other
receivables and a decrease in contract liabilities, offset by an
increase in trade and other payables.
Income tax paid in 2023 was US$9.7m, compared to
US$19.9m in 2022.
In 2023, the Group generated a cash inflow from
operating activities of US$15.8m, compared to a cash outflow of
US$18.9m in 2022, due to increased cash generation from operations
and lower tax payments in 2023.
Capital expenditure during 2023 totalled
US$73.6m (2022: US$15.5m), comprising US$18.6m of property and
equipment (2022: US$4.2m), US$1.8m of intangible assets (2022:
US$4.1m) and US$53.3m of capitalised development expenditure (2022:
US$7.2m). US$6.9m of property and equipment relates to purchases of
lab and test equipment which grew from US$0.1m in 2022 as we ramp
our own product development capabilities.
In 2023, we also made further equity investments
into WiseWave totalling US$14.7m, with Wise Road Capital
contributing US$19.9m. As disclosed in our IPO Prospectus,
Alphawave Semi has the ability to invest up to US$170m in total
into WiseWave, although our expectation is that any future
investment will continue to be limited. We are seeking to exit our
equity investment in WiseWave in 2024 but we will time this exit
based on market conditions to maximise return to
shareholders.
During the second quarter of 2023, the Group's
Fixed Charges Coverage Ratio (FCCR), one of the covenants in its
borrowing arrangements, was below the minimum allowed ratio of
1.25x, principally due to a higher working capital requirement as a
result of a significant reduction in contract liabilities, a higher
proportion of lower margin silicon revenue at the beginning of the
year and increased investment in research and development
activities, as anticipated, as the Group invests in its own
products business. On 22 September 2023, we established an
amendment to the Credit Agreement with the lenders which suspended
the FCCR ratio for the period from the quarter ended 30 June 2023
to the quarter ending 30 June 2024, after which it is set
at 1.1x until the quarter ending 30 September 2025 when it reverts
to 1.25x. As we continue to invest in growth and scale, we continue
to closely monitor our cash flow to ensure we maintain full
compliance with our debt covenants.
The Company's capital allocation policy remains
focused on investment in own product development and prototyping,
critical hires and expertise to support growth opportunities, and
management of our debt position in a changing interest rate
environment. We do not intend to pay dividends or make significant
acquisitions in the short or medium term. We continue to review our
capital allocation framework and available sources of capital to
support our long-term growth strategy.
Finally, as further detailed on the
Directors have adopted the going concern basis of
accounting.
Summary cash
flow
|
|
Restated1
|
US$m
|
31 December 2023
|
31 December
2022
|
Cash generated from operations before changes
in working capital
|
67.3
|
51.0
|
Changes in working capital
|
(41.7)
|
(50.1)
|
Cash generated from operations
|
25.5
|
1.0
|
Taxes paid
|
(9.7)
|
(19.9)
|
Cash flow from operating activities
|
15.8
|
(18.9)
|
Capital expenditure
|
(73.6)
|
(15.5)
|
Investment in joint venture
|
(14.7)
|
(9.1)
|
Purchase of businesses
|
(7.4)
|
(403.6)
|
Drawdown of loans and borrowings
|
15.0
|
210.0
|
Interest paid
|
(18.4)
|
(0.7)
|
Interest received
|
3.1
|
1.3
|
Other cash flows
|
(50.0)
|
14.6
|
Net decrease in cash and cash
equivalents
|
(88.8)
|
(239.9)
|
Cash and cash equivalents at the beginning of
the year
|
186.2
|
501.0
|
Currency translation gain/(loss) on cash and
cash equivalents
|
3.9
|
(74.9)
|
Cash and cash equivalents at the end of the
year
|
101.3
|
186.2
|
1. Restated to reflect the
finalisation of the purchase price allocation on the acquisition of
OpenFive (see notes 12 and 30).
Tony
Pialis
Chief Executive
Officer
23
April 2024
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 (DTR) 4.1.16R, the financial statements will form
part of the annual financial report prepared under DTR 4.1.17R and
4.1.18R. The auditor's report on these financial statements
provides no assurance over whether the annual financial report has
been prepared in accordance with those requirements.
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;
·
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; and
·
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
Chief Executive Officer
23 April 2024
Alphawave IP
Group plc
6th Floor
65 Gresham Street
London
EC2V 7NQ
United Kingdom
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
|
|
Year ended 31
December
|
Continuing operations
|
Note
|
2023
US$'000
|
20221
US$'000
|
Revenue
|
4
|
321,724
|
185,406
|
Cost of sales
|
|
(156,372)
|
(60,777)
|
Gross
profit
|
|
165,352
|
124,629
|
Research and development expenses
|
5
|
(78,216)
|
(69,358)
|
Sales and marketing expenses
|
|
(12,810)
|
(4,647)
|
General and administration expenses
|
|
(40,821)
|
(15,465)
|
of which
expected credit loss
|
24
|
(7,337)
|
(2,184)
|
Other operating (expense)/income
|
6
|
(52,857)
|
2,468
|
Operating
(loss)/profit
|
|
(19,352)
|
37,627
|
Finance income
|
9
|
3,448
|
1,684
|
Finance expense
|
9
|
(8,836)
|
(3,588)
|
Loss from joint venture
|
16
|
(14,730)
|
(18,481)
|
(Loss)/profit
before tax
|
|
(39,470)
|
17,242
|
Income tax expense
|
10
|
(11,532)
|
(18,328)
|
Net
(loss)
|
|
(51,002)
|
(1,086)
|
Other
comprehensive income/(expense)
|
|
|
|
Items that may be reclassified subsequently to
profit or loss:
|
|
|
|
Currency exchange gain/(loss) on translation of
foreign operations
|
|
10,161
|
(74,989)
|
|
|
10,161
|
(74,989)
|
Items that will not be reclassified to profit or
loss:
|
|
|
|
Currency exchange remeasurements of defined
benefit obligation
|
25
|
(1,207)
|
-
|
Related income tax credit
|
|
409
|
-
|
|
|
(798)
|
-
|
Other
comprehensive income/(expense)
|
|
9,363
|
(74,989)
|
Total
comprehensive loss
|
|
(41,639)
|
(76,075)
|
|
|
|
|
Loss per share
(US$ cents)
|
11
|
|
|
Basic
|
|
(7.23)
|
(0.16)
|
Diluted
|
|
(7.23)
|
(0.16)
|
There has been a change to the grouping of
operating expenses in 2022, specifically relating to the
compensation element of Banias deferred cash rights. This is
shown within other operating expenses/(income) in 2023 so we have
changed 2022 operating expenses /(income) to be presented on the
same basis (see notes 6 and 30).
The notes on this document form part of these
financial statements.
CONSOLIDATED BALANCE SHEET
|
|
As at 31
December
|
|
Note
|
2023
|
2022
|
|
Restated1
|
US$'000
|
US$'000
|
Assets
|
|
|
|
Cash and cash equivalents
|
17
|
101,291
|
186,231
|
Trade and other receivables
|
18
|
78,089
|
47,143
|
Contract assets
|
4
|
65,173
|
56,987
|
Inventories
|
19
|
11,622
|
18,061
|
Income tax receivables
|
|
23,467
|
2,922
|
Other current assets
|
20
|
19,017
|
71,475
|
Total current
assets
|
|
298,659
|
382,819
|
Goodwill
|
12
|
309,199
|
309,199
|
Other intangible assets
|
13
|
203,314
|
161,406
|
Property and equipment - owned
|
14
|
20,654
|
13,421
|
Property and equipment - leased
|
15
|
15,262
|
14,553
|
Other investments
|
|
1,019
|
-
|
Trade and other receivables
|
18
|
6,392
|
19,272
|
Deferred tax assets
|
10
|
12,086
|
2,680
|
Total
non-current assets
|
|
567,926
|
520,531
|
Total
assets
|
|
866,585
|
903,350
|
Liabilities and
equity
|
|
|
|
Trade and other payables
|
21
|
69,285
|
88,665
|
Contract liabilities
|
4
|
56,026
|
96,933
|
Income taxes payable
|
|
1,051
|
-
|
Lease liabilities
|
15
|
3,953
|
3,756
|
Loans and borrowings
|
22
|
5,625
|
5,000
|
Total current
liabilities
|
|
135,940
|
194,354
|
Trade and other payables
|
21
|
1,775
|
10,555
|
Lease liabilities
|
15
|
12,727
|
11,177
|
Loans and borrowings
|
22
|
214,750
|
205,201
|
Deferred tax liabilities
|
10
|
32,945
|
13,790
|
Total
non-current liabilities
|
|
262,197
|
240,723
|
Total
liabilities
|
|
398,137
|
435,077
|
Ordinary shares
|
26
|
10,011
|
9,751
|
Share premium account
|
26
|
1,638
|
775
|
Merger reserve
|
26
|
(793,216)
|
(793,216)
|
Share-based payment reserve
|
26
|
41,875
|
18,189
|
Currency translation reserve
|
26
|
(86,546)
|
(96,707)
|
Retained earnings
|
|
1,294,686
|
1,329,481
|
Total
equity
|
|
468,448
|
468,273
|
Total
liabilities and equity
|
|
866,585
|
903,350
|
Restated to reflect the finalisation of the
purchase price allocation on the acquisition of OpenFive (see notes
12 and 30).
The financial statements were approved and
authorised for issue by the Board of Directors on 23 April 2024 and
were signed on its behalf by:
Tony
Pialis
Director
The notes on this document form part of these
financial statements.
CONSOLIDATED CASH FLOW STATEMENT
|
|
As at 31
December
|
|
|
|
Restated1
|
|
|
2023
|
2022
|
|
Note
|
US$'000
|
US$'000
|
Cash flows from
operating activities
|
|
|
|
Net (loss)
|
|
(51,002)
|
(1,086)
|
Non-cash items within operating
profit:
|
|
|
|
- Amortisation of intangible assets
|
13
|
13,294
|
6,159
|
- Depreciation of property and equipment -
owned
|
14
|
11,212
|
2,472
|
- Depreciation of property and equipment -
leased
|
15
|
4,612
|
3,036
|
- Share-based compensation expense
|
27
|
40,691
|
15,695
|
- Currency translation loss/(gain) on
intercompany balances
|
|
15,466
|
(10,444)
|
Deferred cash rights
|
|
8,352
|
1,702
|
Other income
|
|
-
|
-
|
Finance income
|
9
|
(3,448)
|
(1,684)
|
Finance expense
|
9
|
8,836
|
3,588
|
Loss from joint venture
|
16
|
14,730
|
18,481
|
Income tax expense
|
|
4,533
|
13,130
|
Cash generated
from operations before changes in working capital
|
|
67,276
|
51,049
|
Changes in working capital:
|
|
|
|
(Increase) in trade and other
receivables
|
|
(22,592)
|
(120,921)
|
Decrease/(increase) in inventories
|
|
6,439
|
(3,390)
|
(Increase) in contract assets
|
|
(8,186)
|
(22,554)
|
Increase in trade and other payables
|
|
23,503
|
51,973
|
(Decrease)/increase in contract
liabilities
|
|
(40,907)
|
44,834
|
Cash generated
from operations
|
|
25,533
|
991
|
Income taxes paid
|
|
(9,699)
|
(19,906)
|
Cash
inflow/(outflow) from operating activities
|
|
15,834
|
(18,915)
|
Cash flows from
investing activities
|
|
|
|
Purchase of intangible assets
|
13
|
(1,825)
|
(4,131)
|
Purchase of property and equipment
|
14
|
(18,568)
|
(4,209)
|
Capitalised development expenditure
|
|
(53,254)
|
(7,202)
|
Investment in joint venture
|
16
|
(14,730)
|
(9,060)
|
Purchase of businesses, net of acquired
cash
|
|
(7,369)
|
(403,588)
|
Interest received
|
|
3,118
|
1,270
|
Cash outflow
from investing activities
|
|
(92,628)
|
(426,920)
|
Cash flows from
financing activities
|
|
|
|
Issue of ordinary shares
|
26
|
1,123
|
898
|
Interest paid
|
|
(18,390)
|
(650)
|
Lease payments
|
15
|
(4,740)
|
(3,038)
|
Drawdown of loans and borrowings
|
|
15,000
|
210,000
|
Repayment of loans and borrowings
|
|
(5,000)
|
(1,250)
|
Cash
(outflow)/inflow from financing activities
|
|
(12,007)
|
205,960
|
Net decrease in
cash and cash equivalents
|
|
(88,801)
|
(239,875)
|
Cash and cash equivalents at the beginning of
the year
|
|
186,231
|
500,964
|
Currency translation gain/(loss) on cash and
cash equivalents
|
|
3,861
|
(74,858)
|
Cash and cash
equivalents at the end of the year
|
17
|
101,291
|
186,231
|
Restated to reflect the finalisation of the
purchase price allocation on the acquisition of OpenFive (see notes
12 and 30).
A reconciliation of changes in liabilities
arising from financing activities is presented in note
22.
The notes on this document form part of these
financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
Ordinary
|
Share
|
|
Share-based
|
Currency
|
|
|
|
|
share
|
premium
|
Merger
|
payment
|
translation
|
Retained
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
earnings
|
Total
|
|
Note
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
As at 1 January 2022
|
|
9,399
|
-
|
(793,216)
|
4,777
|
(21,718)
|
1,328,530
|
527,772
|
Net loss
|
|
-
|
-
|
-
|
-
|
-
|
(1,086)
|
(1,086)
|
Other comprehensive expense
|
|
-
|
-
|
-
|
-
|
(74,989)
|
-
|
(74,989)
|
Total comprehensive loss
|
|
-
|
-
|
-
|
-
|
(74,989)
|
(1,086)
|
(76,075)
|
Settlement of share awards:
|
|
|
|
|
|
|
|
|
- Issue of ordinary shares
|
26
|
352
|
775
|
-
|
(246)
|
-
|
-
|
881
|
- Transfer of cumulative compensation
expense on settled awards
|
27
|
-
|
-
|
-
|
(2,037)
|
-
|
2,037
|
-
|
Share-based compensation expense for the
year
|
27
|
-
|
-
|
-
|
15,695
|
-
|
-
|
15,695
|
Other changes in equity
|
|
352
|
775
|
-
|
13,412
|
-
|
2,037
|
16,576
|
As at 31 December 2022
|
|
9,751
|
775
|
(793,216)
|
18,189
|
(96,707)
|
1,329,481
|
468,273
|
Net loss for the year
|
|
-
|
-
|
-
|
-
|
-
|
(51,002)
|
(51,002)
|
Other comprehensive expense
|
|
-
|
-
|
-
|
-
|
10,161
|
(798)
|
9,363
|
Total comprehensive loss for the year
|
|
-
|
-
|
-
|
-
|
10,161
|
(51,800)
|
(41,639)
|
Settlement of share awards:
|
|
|
|
|
|
|
|
|
- Issue of ordinary shares
|
26
|
260
|
863
|
-
|
-
|
-
|
-
|
1,123
|
- Transfer of cumulative compensation expense on
settled awards
|
27
|
-
|
-
|
-
|
(17,005)
|
-
|
17,005
|
-
|
Share-based compensation expense for the
year
|
27
|
-
|
-
|
-
|
40,691
|
-
|
-
|
40,691
|
Other changes in equity
|
|
260
|
863
|
-
|
23,686
|
-
|
17,005
|
41,814
|
As at 31
December 2023
|
|
10,011
|
1,638
|
(793,216)
|
41,875
|
(86,546)
|
1,294,686
|
468,448
|
The notes on this document form part of these
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the year
ended 31 December 2023
1
Background
Reporting entity
Alphawave IP Group plc (the 'Company') is a
public limited company that is incorporated and domiciled in
England and Wales and whose shares are listed on the main market of
the London Stock Exchange. The address of the Company's registered
office is 6th Floor, 65 Gresham Street, London, EC2V 7NQ,
United Kingdom.
The principal activities of the Company and its
subsidiaries (together, the 'Group') are the development and
marketing of high-speed connectivity solutions for application in
data centres, data networking, data storage, artificial
intelligence, 5G wireless infrastructure and autonomous
vehicles.
The financial information set out above does not
constitute the company's statutory accounts for the years ended 31
December 2023 or 2022 but is derived from those accounts. Statutory
accounts for 2022 have been delivered to the registrar of
companies, and those for 2023 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.
Statement of
compliance
The consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted for use in the United Kingdom and those
parts of the Companies Act 2006 that are applicable to companies
reporting under IFRS. The consolidated financial statements also
comply with IFRS as issued by the International Accounting
Standards Board (IASB).
Basis of preparation
The consolidated financial statements have been
prepared on a going concern basis and in accordance with the
historical cost convention, except that certain investments and
contingent consideration are measured at fair value.
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Information
about assets and liabilities that are measured at fair value is
presented in note 23.
The Group's material accounting policies are set
out in note 2.
Going concern
At the time of approving the financial
statements, the Directors are required to form a judgement as to
whether the Group and the Company have adequate resources to
continue in operational existence for the foreseeable future. In
forming their judgement, the Directors consider the Group's current
financial position, the Group's medium-term plan and its budget for
the next financial year, and the principal risks and uncertainties
that it faces.
As at 31 December 2023, the Group had cash and
cash equivalents of US$101.3million and had bank borrowings
totalling US$220.4million, comprised of a Term Loan of
US$95.4million and US$125.0million drawn against a US$125.0m
Revolving Credit Facility. Both the Term Loan and the Revolving
Credit Facility are scheduled to mature in the fourth quarter of
2027.
The Directors based their going concern
assessment on the base case scenario and a severe but plausible
downside scenario over the going concern period as
follows:
·
Group revenue forecasts are materially reduced by 25% and the
interest rate on the Group's debt is 200 basis points higher than
forecast, with a controllable mitigating reduction of 10% of
operating expenditure and a reduction of 50% in laboratory and
prototyping operating and capital expenditure.
Under both the base and downside scenario, there
are no further investments forecast to be made to WiseWave. Under
the base case and the downside scenario, the analysis demonstrates
the Group can continue to maintain sufficient liquidity headroom
with no default on debt covenants.
Following consideration of the Group's liquidity
position and prospects for the year ahead, the Directors have a
reasonable expectation that the Group has adequate resources for a
period of at least twelve months from the date of approval of the
consolidated financial statements and have therefore assessed that
the going concern basis of accounting is appropriate in preparing
the consolidated financial statements.
Segment information
An operating segment is a component of an entity
that engages in business activities from which it may earn revenues
and incur expenses for which discrete financial information is
available and whose operating results are regularly reviewed by the
Chief Operating Decision Maker (CODM) to assess performance and
make resource allocation decisions.
Our business model is such that our IP is
leveraged across the channels through which we provide our products
and services to customers, i.e. IP licensing, custom silicon or own
products. Moreover, the Group's products and services are of
similar nature and are provided to similar types of customers in
similar locations. Our CODM, the Chief Executive Officer, therefore
does not utilise disaggregated information for resource allocation
decisions. Accordingly, management considers that the Group's
business constitutes only one operating segment and therefore no
disaggregated information is presented in the consolidated
financial statements.
Presentation currency
The Directors consider that the Company's
functional currency is pound sterling, but present the consolidated
financial statements in US dollars ('US$') because substantially
all of the Group's revenues and a significant part of its expenses
are denominated in US$. US$ is the presentation currency used by
most companies in the semiconductor industry and its use by the
Group therefore assists investors in making comparisons with its
peers.
All US$ amounts are rounded to the nearest
thousand, unless stated otherwise.
Use
of estimates
The preparation of the financial statements
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Changes in estimates and
assumptions are accounted for prospectively. Actual outcomes may
differ from estimates and assumptions and affect the Group's
results in future periods. Key sources of estimation uncertainty
affecting the consolidated financial statements are discussed in
note 3.
Approval of the consolidated financial
statements
The consolidated financial statements for the
year ended 31 December 2023 were authorised for issue by the Board
of Directors on 23 April 2024.
Company financial
statements
Separate financial statements for the Company
are set out on pages 79 to 80.
Accounting standards adopted during the
year
IFRS 17
Insurance Contracts
IFRS 17 requires liabilities in relation to
insurance contracts to be measured at current fulfilment value and
provides a more uniform measurement and presentation approach for
all insurance contracts compared with the standard that it
replaced, IFRS 4 Insurance Contracts.
While the Group established a captive insurance
subsidiary with the intention of providing Directors' and officers'
liability insurance, it has not transacted any business.
Accordingly, the adoption of IFRS 17 had no impact on the
consolidated financial statements.
Classification
of Liabilities as Current or Non-Current and Non-current
Liabilities with Covenants (Amendments to IAS 1)
Amendments to IAS 1 Presentation of Financial
Statements were issued by the IASB in 2020 and 2022 to clarify that
the classification of liabilities with an uncertain settlement date
as current or non-current is based on rights that are in existence
at the end of the reporting period and to introduce new disclosure
requirements for non-current liabilities that are subject to
covenants.
While adoption of the amendments was not
mandatory for the Group until 1 January 2024, we adopted them early
with effect from 1 January 2023.
As disclosed in note 22, the Group has
outstanding borrowings under a Term Loan facility and a Revolving
Credit Facility that are subject to financial covenants. For the
period ended on 30 June 2023, the Fixed Charges Coverage Ratio was
below the minimum permitted level of 1.25x.
As a consequence of having adopted the
amendments to IAS 1, since the breach of the covenant was
unresolved as at 30 June 2023, the amounts outstanding under
the Term Loan and the Revolving Credit Facility were classified
wholly as current liabilities in the consolidated balance sheet as
at that date. On 22 September 2023, we agreed an amendment of
the Credit Agreement with the lenders that temporarily suspended
the Fixed Charges Covenant Ratio but introduced a Minimum Liquidity
Requirement. Since the Group was not in breach of the amended
financial covenants as at 31 December 2023,
the appropriate portion of the amounts owed under the
Term Loan facility and the Revolving Credit Facility are
classified as non-current liabilities in the consolidated
balance sheet as at that date.
International
Tax Reform - Pillar Two Model Rules (Amendments to IAS
12)
In October 2021, the OECD published its Global
Anti-Base Erosion Model Rules (Pillar Two) that seek to ensure that
large multinational enterprises pay a minimum effective corporate
tax rate of 15% on the income arising in each jurisdiction where
they operate.
In view of the uncertainties that exist during
the implementation phase, in May 2023, the IASB issued amendments
to IAS 12 Income Taxes that introduce a temporary exception under
which an entity does not recognise any deferred tax assets or
liabilities related to Pillar Two top-up taxes together with new
disclosure requirements concerning an entity's estimated exposure
to them. The amendments became effective for the Group immediately
following their endorsement for use in the UK in July
2023.
Since the Group does not currently operate in
any jurisdiction where it expects to have a liability for Pillar
Two top-up taxes, adoption of the amendments has had no impact on
the consolidated financial statements.
Definition of
Accounting Estimates (Amendments to IAS
8)
Amendments to IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors that introduce a definition of
an accounting estimate to be applied where items are subject to
measurement uncertainty and clarify that a change in an accounting
estimate that results from new information or new developments is
not the correction of an error.
Adoption of the amendments did not have a
material impact on the consolidated financial
statements.
Disclosure of
Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)
Amendments to IAS 1 to require the disclosure of
'material', rather than 'significant', accounting policies.
Although adoption of the amendments did not result in any change in
the Group's accounting policies themselves, they have caused
management to revise the accounting policy information disclosed in
the consolidated financial statements.
Deferred Tax
related to Assets and Liabilities arising from a Single Transaction
(Amendments to IAS 12)
Amendments to IAS 12 that have the effect that
the exemption from the requirement to recognise deferred tax assets
and liabilities on initial recognition of a transaction does not
apply to transactions in which equal amounts of deductible and
taxable temporary differences arise on initial recognition,
for example where a lessee recognises an asset and a liability
on the commencement of a lease.
The Group previously accounted for deferred tax
on leases on a net basis. Since adopting the amendments, where
appropriate, the Group has recognised a separate deferred tax asset
in relation to its lease liabilities and a deferred tax liability
in relation to its right-of-use assets. However, there was no
impact on the consolidated financial statements because the
deferred tax assets and liabilities recognised qualified for offset
under IAS 12.
Accounting standards issued but not
adopted as at 31 December 2023
Supplier
Finance Arrangements (Amendments to IAS 7 and IFRS
7)
Amendments to IAS 7 Statement of Cash Flows and
IFRS 7 Financial Instruments: Disclosures that add new disclosure
requirements to the nature and extent of supplier finance
arrangements (also known as 'reverse factoring').
The amendments became effective for the Group on
1 January 2024.
The Group does not currently provide supplier
finance arrangements.
Lease
Liability in a Sale and Leaseback (Amendments to IFRS
16)
Amendments to IFRS 16 Leases that clarify how a
seller-lessee measures sale and leaseback transactions. The
amendments became effective for the Group on 1 January
2024.
Management will refer to the new guidance in the
event that the Group enters into any sale and leaseback
transactions in the future.
Lack of
Exchangeability (Amendments to IAS 21)
Amendments to IAS 21 The Effects of Changes in
Foreign Exchange Rates to provide guidance to identify when a
currency is exchangeable and how to determine the exchange rate to
be used for accounting purposes when it is not. Subject to their
endorsement for use in the UK, the amendments will become effective
for the Group on 1 January 2025.
Management does not expect that adoption of the
new guidance will have a material impact on the consolidated
financial statements.
2 Material
accounting policies
Basis of consolidation
The consolidated financial statements
incorporate the results, cash flows and assets and liabilities of
the Company and its subsidiaries.
A subsidiary is an entity that is controlled,
either directly or indirectly, by the Company. Control exists when
the Company is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those
returns through its power to direct the relevant activities of the
entity. Generally, such power exists where the Company holds a
majority of the voting rights of an entity. When the Company holds
less than a majority of the voting rights of an entity, it
considers all relevant facts and circumstances in assessing whether
or not its voting rights are sufficient to give it power to direct
the activities that significantly affect its returns from the
entity, including: the size of the Company's holding of voting
rights relative to the size and dispersion of the holdings of other
vote holders; potential voting rights held by the Company, other
vote holders or other parties; and rights arising from other
contractual arrangements.
Details of the Company's subsidiaries as at 31
December 2023 are set out on page 86.
Consolidation of a subsidiary commences when the
Company obtains control over the subsidiary and ceases at such time
as control over the subsidiary is lost. Transactions and balances
between members of the Group, and any unrealised profits or losses
on such transactions, are eliminated on consolidation.
Changes in the Company's ownership interest in a
subsidiary that do not result in a loss of control are accounted
for within equity.
Joint ventures
A joint venture is a joint arrangement where the
parties that have joint control of the arrangement have rights to
the net assets of the arrangement, rather than rights to its assets
and obligations for its liabilities. Joint control is the
contractually agreed sharing of control of an arrangement which
exists only when decisions about the activities that significantly
affect the returns of the arrangement require the unanimous consent
of the parties sharing control.
Joint ventures are accounted for using the
equity method. On initial recognition the investment in a joint
venture is recognised at cost and the carrying amount of the
investment is increased or decreased to recognise the Group's share
of the comprehensive income or loss of the joint venture after the
date of acquisition. If the Group's share of losses of a joint
venture equals or exceeds its interest in the joint venture, the
Group does not recognise its share of further losses. After the
Group's interest in a joint venture is reduced to nil, additional
losses are provided for, and a liability recognised, only to the
extent that it has incurred legal or constructive obligations or
made payments on behalf of the joint venture.
The Group's investment agreement in its joint
venture, WiseWave Technology Co., LTD, stipulates that Alphawave
can invest up to US$170,000,000 in WiseWave. Any requirement for a
capital contribution is a shareholder reserved matter which
requires the explicit approval of Alphawave as joint investor. As
such, the Group does not have a constructive obligation to fund the
joint venture and therefore additional losses recorded after the
Group's interest in the joint venture have reduced to nil are not
provided for and no liability is recognised.
Unrealised profits and losses arising on
transactions involving assets between the Group and a joint venture
are recognised only to the extent of unrelated investors' interests
in the joint venture. Accordingly, the Group's share of its profit
from the licensing of IP or the sale of products to a joint venture
is eliminated to the extent that the resulting asset has not been
utilised by the joint venture or sold on to a third party.
Such elimination is made in arriving at the Group's share of
the profit or loss from the joint venture and correspondingly
against its interest in the joint venture. However, such
elimination is made after the Group has recognised its share of the
comprehensive income or loss of the joint venture and only to the
extent that its interest in the joint venture is reduced to
nil.
Business combinations
A business combination is a transaction or other
event in which the Company obtains control over a
business.
Business combinations are accounted for using
the acquisition method.
Goodwill acquired in a business combination is
recognised as an intangible asset and represents the excess of the
aggregate of the consideration transferred, including contingent
consideration, and the amount of any non-controlling interests in
the acquired business
over the net total of the identifiable assets
and liabilities of the acquired business at the acquisition date.
Any shortfall, negative goodwill, is recognised immediately as a
gain in profit or loss.
Consideration transferred represents the sum of
the fair values at the acquisition date of the assets given,
liabilities incurred or assumed and equity instruments issued by
the Group in exchange for control over the acquired
business.
Acquisition-related costs are charged to profit
or loss in the period in which they are incurred.
Identifiable assets and liabilities of the
acquired business are measured at their fair value at the
acquisition date, except for certain items that are measured in
accordance with the relevant Group accounting policy, such as
replacement equity-settled share-based compensation awards and
deferred tax assets and liabilities.
Non-controlling interests that entitle their
holders to a proportionate share of the net assets of the acquired
business in the event of a liquidation are measured either at fair
value or at the non-controlling interest's proportionate share of
the identifiable assets and liabilities of the business. Other
non-controlling interests are measured at fair value.
If the initial accounting for a business
combination is incomplete by the end of the reporting period in
which the combination occurs, provisional amounts are reported for
the items for which the accounting is incomplete. During a
measurement period of up to one year after the acquisition date,
adjustments may be made to the provisional amounts as if the
accounting for the business combination had been completed at the
acquisition date. Thereafter, the initial accounting for a business
combination may not be adjusted except to correct an
error.
Foreign currency
translation
Each entity within the Group has a functional
currency, which is normally the currency in which the entity
primarily generates and expends cash.
At entity level, a foreign currency is a
currency other than the entity's functional currency. Sales,
purchases and other transactions denominated in foreign currencies
are recorded in the entity's functional currency at the exchange
rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the
exchange rate ruling at the end of the reporting period. Currency
translation differences arising at entity level are recognised in
profit or loss. Non-monetary assets and liabilities denominated in
foreign currencies are not retranslated subsequent to initial
recognition.
On consolidation, the results of foreign
operations are translated into US dollars at the average exchange
rate for the reporting period and their assets and liabilities are
translated into US dollars at the exchange rate ruling at the end
of the reporting period. Currency translation differences arising
on consolidation are recognised in other comprehensive income and
taken to the currency translation reserve. In the event that a
foreign operation is sold, the related cumulative currency
translation difference recognised in other comprehensive income is
reclassified from equity to profit or loss and is included in
calculating the gain or loss on disposal of the foreign
operation.
Revenue recognition
General
principles
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.
IP
licensing
The Group enters into 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').
The Group typically licenses its IP products
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.
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 enters into 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 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
The Group enters into contracts with customers
for the supply of silicon devices that are developed by the Group
to the customer's specification. 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 licensed the Group's IP products to
third-party customers under an exclusive IP subscription reseller
agreement that ended in December 2023. Under the agreement, we
charged VeriSilicon exclusivity fees for each calendar year that we
invoiced to them and collected on a quarterly basis.
The exclusivity fees represented minimum annual
payments by VeriSilicon against which it could offset purchases of
our IP products for license to third parties at any time during the
relevant calendar year. We carried out the necessary customisation
and/or configuration of our IP products to meet the requirements of
the end-customers.
We recognised revenue under the agreement by
reference to the stage of completion of the related customisation
and/or configuration project, measured based on the engineering
hours spent on work performed as a percentage of the estimated
total project hours. Any unutilised exclusivity payments could not
be carried forward by VeriSilicon to future calendar
years.
We therefore recognised any unutilised
exclusivity payments as additional revenue at the end of the
relevant calendar year.
Licence
agreement with joint venture
We have a subscription licence agreement that
provides WiseWave with right of use over a library of our IP
products for a fixed fee spread over a period of five years ending
in 2026. 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.
Research and development
('R&D')
All research expenditure is expensed as it is
incurred.
Development expenditure is also expensed as it
is incurred until such time as it can be demonstrated that the
product is both technically feasible and commercially viable and
that management intends to complete the development of the product
and sell it to customers. Development expenditure incurred after
that time and before the developed product is available to be put
into full production is capitalised.
R&D expenditure
credits
R&D expenditure credits principally comprise
amounts claimed from the Canadian federal and provincial government
under the Scientific Research and Experimental Development (SRED)
incentive programme. Claims are made annually based on assumptions
and estimates made by management in determining the eligible
R&D expenditure incurred during the year. Claims made are
subject to review and approval by the Canadian tax authorities and
may be subject to adjustment in subsequent years.
R&D expenses are stated after deducting
R&D expenditure credits claimed for the year and any
adjustments to amounts claimed in previous years. We recognise a
corresponding receivable for R&D expenditure credits claimed.
R&D expenditure credits receivable are settled by deduction
from the amount of income tax payable to the Canadian tax
authorities. Any excess of the R&D expenditure credits
receivable over income tax payable is paid to the Group by the tax
authorities.
Goodwill
Goodwill acquired in a business combination is
carried at cost, less impairment losses, if any.
Internally generated goodwill is not recognised
as an asset.
Other intangible
assets
Other intangible assets comprise identifiable
intangibles acquired in business combinations (principally
customer-related assets and developed technology), licences and
capitalised product development costs.
Other intangible assets are carried at cost less
accumulated amortisation and impairment losses, if any. Cost
comprises the purchase price of the asset and any costs directly
attributable to preparing the asset for its intended use, or, in
the case of an asset acquired in a business combination, is its
fair value at the acquisition date.
Other intangible assets are amortised on a
straight-line basis so as to charge their cost to profit or loss
over their estimated useful lives as follows:
Developed
IP
- 4 to 5 years
Developed technology
- 4 to 8 years
Customer
relationships - 12
years
Note developed technology includes all
capitalised development. Estimated useful lives are regularly
reviewed and the effect of any change in estimate is accounted for
prospectively by adjustment to the amortisation expense. Other
intangible assets are regularly reviewed to eliminate obsolete
items.
Property and equipment -
owned
Property and equipment is carried at cost less
accumulated depreciation and impairment losses, if any. Cost
comprises the purchase price of the asset and any costs directly
attributable to bringing the asset to the location and condition
necessary to enable its intended use, or, in the case of an asset
acquired in a business combination, is its fair value at the
acquisition date.
Repair and maintenance costs are charged to
profit or loss in the period in which they are incurred.
Items of property and equipment are depreciated
on a straight-line basis so as to charge their cost, less estimated
residual value, to profit or loss over their expected useful lives
as follows:
Computer
equipment
- 2 years
Furniture and
fixtures
- 5 years
Leasehold improvements -
2½ years
Laboratory
equipment
- 2 years
Depreciation methods, useful lives and residual
values are reviewed at each balance sheet date and the effect of
any change in estimate is accounted for prospectively by adjustment
to the depreciation expense. Property and equipment is regularly
reviewed to eliminate obsolete items.
Any gain or loss arising on disposal of property
and equipment is recognised in profit or loss.
Property and equipment -
leased
Where the Group is lessee in a lease
arrangement, it recognises a right-of-use asset and an
associated lease liability, except where the leased asset is of low
value or the lease is short term (a lease term of twelve months or
less).
On the commencement date of a lease, the lease
liability is measured at the present value of the future lease
payments discounted using the interest rate implicit in the lease,
if that rate can be readily determined, or using the lessee
entity's incremental borrowing rate. Future lease payments comprise
fixed lease payments, less any lease incentives receivable,
variable payments that depend on an index or rate (initially
measured using the index or rate at the commencement date) and,
where applicable, amounts expected to be paid under a residual
value guarantee, a purchase option or by way of termination
penalties.
Variable lease payments that do not depend on an
index or rate are not reflected in the lease liability and are
recognised in profit or loss in the period in which the event that
triggers those payments occurs.
After the commencement date, the carrying amount
of the lease liability is increased to reflect the accrual of
interest, reduced to reflect lease payments made and remeasured to
reflect reassessments of the future lease payments or certain lease
modifications. Interest on the lease liability is recognised in
profit or loss (within interest expense).
On the commencement date of a lease, the
right-of-use asset is measured at cost which comprises the initial
amount of the lease liability, adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs
incurred and an estimate of any dismantling or restoration costs
(typically leasehold dilapidations).
The right-of-use asset is subsequently
depreciated using the straight-line method from the commencement
date to the end of the lease term, unless the lease transfers
ownership of the underlying asset to the Group by the end of the
lease term or the cost of the right-of-use asset reflects that the
Group will exercise a purchase option. In that case, the
right-of-use asset will be depreciated over the useful life of the
underlying asset, which is determined on the same basis as those of
property and equipment. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted for
certain remeasurements of the lease liability.
Where a contract contains a lease and non-lease
components (for example, property maintenance services) and the
contractual payments cannot be readily allocated to the lease
component, the Group accounts for the entire contract as
a lease.
Lease payments relating to low-value assets or
to short-term leases are recognised as an expense (in arriving at
operating profit) on a straight-line basis over the lease
term.
Cloud-computing
arrangements
Software-as-a-Service (SaaS) arrangements convey
to the Group the right to access the supplier's application
software rather than control over the software. SaaS arrangements
are accounted for as service contracts (rather than as a lease or
the purchase of an intangible asset). Accordingly, the cost of a
SaaS arrangement is recognised as an expense on a systematic basis
over the term of the arrangement.
Costs that we incur to configure or customise
the provider's software in a SaaS arrangement are recognised as an
expense as incurred or, if not distinct from the right to access
the software, over the term of the arrangement.
Capitalisation of borrowing
costs
Borrowing costs are capitalised if they are
directly attributable to the acquisition, construction or
production of a qualifying asset, being an asset that takes a
substantial period of time to get ready for its intended use.
Borrowing costs are considered to be directly attributable to a
qualifying asset if the related borrowings would have been avoided
if the expenditure on the asset had not been made.
Impairment of tangible and intangible
assets
Goodwill, other intangible assets and property
and equipment are tested for impairment whenever events or
circumstances indicate that their carrying amounts may not be
recoverable. Additionally, goodwill and intangible assets still
under development are subject to an annual impairment
test.
An asset is impaired to the extent that its
carrying amount exceeds its recoverable amount. An asset's
recoverable amount is the higher of its value-in-use and its fair
value less costs of disposal. An asset's value-in-use 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.
Where it is not possible to estimate the
recoverable amount of an individual asset, the recoverable amount
is determined for the cash-generating unit (CGU) to which the asset
belongs. An asset's CGU is the smallest identifiable group of
assets that includes the asset and generates cash inflows that are
largely independent of the cash inflows from other assets or groups
of assets. Goodwill does not generate cash flows independently of
other assets and is, therefore, tested for impairment at the level
of the CGU or group of CGUs that are expected to benefit from the
synergies of the related business combination.
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
specific risks.
Impairment losses are recognised in profit or
loss.
Impairment losses recognised in previous periods
for assets other than goodwill 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.
Impairment losses in respect of goodwill are not
reversed.
Inventories
Inventories comprise raw materials, work in
progress and finished goods.
Inventories are stated at the lower of cost and
net realisable value. Cost is determined using the weighted-average
cost method and includes expenditure incurred in acquiring the
inventories and in bringing them to their present location and
condition. In the case of work in progress and finished goods, cost
includes an appropriate share of overheads based on normal
operating capacity. Net realisable value represents the estimated
selling price, less estimated costs of completion and marketing,
selling and distribution costs.
Financial instruments
Cash and cash
equivalents
Cash and cash equivalents comprise cash at bank
and on hand and bank deposits with an original maturity of 90 days
or less. Cash and cash equivalents are measured at fair value on
initial recognition, less an allowance for expected credit losses,
and subsequently measured at amortised cost using the effective
interest method.
Contract
assets
Contract assets represent the amount of revenue
recognised on IP and product development contracts that has not yet
been invoiced to the customer, less an allowance for
expected
credit losses.
Trade and
other receivables
Trade receivables represent the amount of
revenue from customers that has been invoiced, but for which
payment has not been received. Trade and other receivables are
measured at fair value on initial recognition, less an allowance
for expected credit losses, and subsequently measured at amortised
cost.
Equity
investments
Equity investments are measured at fair value
through profit or loss unless we make an irrevocable election on
initial recognition to measure them at fair value through other
comprehensive income. Gains and losses recognised in other
comprehensive income are not reclassified to profit or loss in the
event that the investment is sold.
Impairment of
financial assets
The Group recognises an allowance for credit
losses in respect of trade receivables and contract assets measured
as the amount of the lifetime expected credit losses 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.
We recognise an allowance for credit losses in
respect of other financial assets that is measured as the amount of
expected credit losses over the next twelve months. If, however,
the risk of default has increased significantly since initial
recognition, we measure the allowance as the amount of lifetime
expected credit losses.
If a financial asset has no realistic prospect
of recovery, it is written off, firstly against any allowance made
and then directly to profit or loss. We consider that a financial
asset is not recoverable if the balance owing is 365 days past due
and information obtained from the counterparty and other external
factors indicate that the counterparty is unlikely to pay its
creditors in full. Any subsequent recoveries are credited to profit
or loss.
Trade and
other payables
Trade payables represent the value of goods and
services purchased from suppliers for which payment has not been
made. Trade and other payables are measured at fair value on
initial recognition and subsequently measured at
amortised cost.
Contingent
consideration liabilities
Contingent consideration that is classified as a
liability is measured at fair value through profit or loss.
Contingent consideration that is classified as equity is not
remeasured and its subsequent settlement is accounted for
within equity.
Loans and
borrowings
Bank and other loans are measured at fair value
on initial recognition, less any directly attributable transaction
costs, and are subsequently measured at amortised cost using the
effective interest method.
If a loan or borrowing is subject to covenants
and the Group is in breach of one or more of the covenants at the
end of the reporting period, the carrying amount of the liability
is classified wholly as a current liability, irrespective of any
element that would otherwise be payable more than one year after
the end of the reporting period.
Facility arrangement costs are amortised as a
finance expense over the term of the facility.
Offsetting
financial instruments
Financial assets and financial liabilities are
offset and the net amount presented in the balance sheet where
there is a currently enforceable legal right to offset the
recognised amounts and management intends either to settle on a net
basis or to realise the asset and settle the liability
simultaneously.
Contract liabilities
Contract liabilities represent amounts invoiced
to customers in excess of revenue recognised on IP and product
development contracts.
Share-based payments
As described in note 27, the Company operates
share-based payment plans under which it grants options and RSUs
over its ordinary shares to certain of its employees and those of
its subsidiaries. Awards granted under the existing plans are
classified as equity-settled awards.
We recognise a compensation expense that is
based on the fair value of the awards measured at the grant date
using an appropriate valuation model. Fair value is not
subsequently remeasured unless relevant conditions attaching to the
awards are modified.
Fair value reflects any market performance
conditions and all non-vesting conditions. Adjustments are made to
the compensation expense to reflect actual and expected forfeitures
due to failure to satisfy service conditions or
non-market performance conditions.
We recognise the resulting compensation expense
on a systematic basis over the vesting period and a corresponding
credit is recognised in the share-based payments reserve within
equity.
In the event of the cancellation of an option or
an award by the Company or by the participating employee, the
compensation expense that would have been recognised over the
remainder of the vesting period is recognised immediately in profit
or loss.
Post-employment
benefits
Defined
contribution plans
Contributions to defined contribution pension
plans are charged to profit or loss in the period to which they
relate.
Defined
benefit plans
As described in note 25, the Group operates
certain unfunded post-employment benefit plans in India.
We measure the benefit obligation on an
actuarial basis using the projected unit credit method and this is
discounted using a discount rate derived from high-quality
corporate bonds with a similar duration as the benefit
obligation.
We recognise the current service cost and
interest on the benefit obligation in profit or loss. The current
service cost represents the increase in the present value of the
benefit obligation resulting from employee service in the period.
Interest on the benefit obligation is determined by applying the
discount rate to the benefit obligation, both as determined at the
beginning of each year, but taking into account benefit payments
during the period.
We recognise the effect of remeasurements of the
benefit obligation in other comprehensive income. Remeasurements
comprise actuarial gains and losses arising due to changes in
actuarial assumptions and experience adjustments.
Income taxes
Tax on the profit or loss for the year comprises
current and deferred tax. Tax is recognised in the profit and loss
account except to the extent it relates to items recognised
directly in equity or other comprehensive income, in which case it
is recognised directly in equity or other comprehensive
income.
Current tax is the amount of tax payable or
recoverable in respect of the taxable profit or loss for the
period. Taxable profit differs from accounting profit because it
excludes income or expenses that are recognised in the period for
accounting purposes but are either not taxable or not deductible
for tax purposes or are taxable or deductible in earlier or
subsequent periods. Current tax is calculated using tax rates and
laws that have been enacted or substantively enacted at the balance
sheet date.
Deferred tax is tax expected to be payable or
recoverable on temporary differences between the carrying amount of
an asset or liability in the financial statements and its tax base
used in the computation of taxable profit. Deferred tax liabilities
are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available in the future against which they
can be utilised.
Deferred tax assets and liabilities are not
recognised in respect of temporary differences arising from the
initial recognition of goodwill or from the initial recognition of
other assets or liabilities in a transaction that is not a business
combination and, at the time of the transaction, affects neither
accounting profit nor taxable profit and does not give rise to
equal amounts of taxable and deductible temporary
differences.
Deferred tax liabilities are recognised for
taxable temporary differences associated with investments in
subsidiaries, except where management is able to control the
reversal of the temporary difference and it is probable that it
will not reverse in the foreseeable future. Deferred tax assets and
liabilities are measured using the tax rates that are expected to
apply when the asset is realised or the liability is settled, based
on tax rates and laws that have been enacted or substantively
enacted at the balance sheet date.
Where there is uncertainty concerning the tax
treatment of an item or group of items, the amount of current and
deferred tax recognised is based on management's expectation of the
likely outcome of the examination of the uncertain tax treatment by
the relevant tax authorities. Uncertain tax treatments are reviewed
regularly and current and deferred tax amounts are adjusted to
reflect changes in facts and circumstances, such as the expiry of
limitation periods for assessing tax, administrative guidance given
by the tax authorities and court decisions.
Current tax assets and liabilities are offset
when there is a legally enforceable right to set off the amounts
and management intends to settle on a net basis. Deferred tax
assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets and liabilities and
the deferred tax assets and liabilities relate to income taxes
levied by the same taxation authority on the same taxable
entity.
Current tax and deferred tax is recognised in
profit or loss unless it relates to an item that is recognised in
the same or a different period outside profit or loss, in which
case the related tax is also recognised outside profit or loss,
either in other comprehensive income or directly in
equity.
Payments by customers incorporated in certain
tax jurisdictions may be subject to withholding tax. Where the
country in which the sales invoice is raised has a tax treaty in
place with the relevant tax jurisdiction, the tax withheld is
treated as prepaid income tax and offset against current tax
payable.
3 Critical
judgements and key sources of estimation
uncertainty
Critical judgements in applying the
Group's accounting policies
Critical judgements are the judgements, apart
from those involving estimates, that management has made in
applying the Group's accounting policies that have had the most
significant effect on the consolidated financial
statements.
Revenue
recognition - Identification of performance
obligations
IP licensing
Hard IP products are typically delivered in
multiple stages, referred to as IP views. Management considers that
these deliveries are not distinct because each IP view is highly
dependent on or interrelated with one or more of the other
IP views.
Furthermore, management does not consider any
NRE work required to configure the IP products to be distinct
because customers would be unable to benefit from the IP views
without configuration by Alphawave. In management's judgement, the
delivery of IP views and the NRE work required to configure them
represents a single performance obligation.
While the initial delivery of soft IP may not be
to a customer's exact specification, they can use the IP without
significant modification. In management's judgement, the initial
delivery of soft IP is a separate performance obligation but any
customisation work and subsequent IP deliveries are a single
separate performance obligation because they are highly dependent
or interrelated with each other.
In management's judgement, support services are
a separate performance obligation from the delivery of IP products
because customers could benefit from the services on their own or
with other resources that are readily available to them.
Custom silicon
Custom silicon developments are typically
complex and highly customised with detailed engineering schedules
and deliverables.
While the various elements of the contracts are
capable of being distinct, they are not distinct in the context of
the contract because 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, therefore, a custom silicon development
contract constitutes a single performance obligation.
Custom silicon 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. In management's
judgement, therefore, the 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.
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. Identification of CGUs is important for determining the
Group's operating segments and the level at which goodwill should
be tested for impairment.
Our business model is such that our IP is
leveraged across the channels through which we provide our products
and services to customers, i.e. IP licensing, custom silicon and
own products. Given this interdependence of the Group's operations,
management considers that the Group consists of a single CGU
because there is no asset or group of assets within the business
that generates cash inflows that are largely independent of the
cash inflows from other assets or groups of assets. Consequently,
the Group consists of a single operating segment and goodwill is
tested for impairment at Group level based on the fair value less
costs of disposal or value-in-use of the Group as a
whole.
Capitalisation
of product development costs
Product development costs are capitalised from
the time when the technical feasibility and commercial viability of
the product can be demonstrated. Management is therefore required
to make judgements about the technical feasibility of the product
based on engineering studies and the commercial viability of the
product based on expectations concerning the marketability of the
product, the product's useful life and the extent of future demand
from customers. During 2023, the Group capitalised development
costs totalling US$54.5m (2022: US$7.2m).
Capitalisation
of borrowing costs
Borrowing costs are capitalised if they are
directly attributable to the acquisition, construction or
production of a qualifying asset, such as capitalised development
costs. To the extent that the Group borrows funds generally and
uses them for the purpose of obtaining a qualifying asset, the
Group determines the amount of borrowing costs eligible for
capitalisation by applying a capitalisation rate to the
expenditures on that asset. Accordingly, the Group has capitalised
eligible borrowing costs to capitalised development
costs.
Accounting for
WiseWave
Classification as a joint
venture
The Group owns a 42.5% equity interest in
WiseWave Technology Co Ltd ('WiseWave'), a company established in
China to develop and sell silicon products incorporating silicon IP
licensed from Alphawave.
Management was required to exercise judgement to
determine whether WiseWave is an associate (an entity over which
the Group has significant influence, but not control) or a joint
arrangement (an arrangement in which the Group has joint control
with one or more other parties). Joint control is the contractually
agreed sharing of control of an arrangement, which exists only
when decisions about activities that significantly affect the
returns of the arrangement require the unanimous consent of the
parties sharing control. Management determined that Alphawave has
joint control and that WiseWave is therefore a joint
arrangement.
Further judgement was required to assess whether
Alphawave has rights to the joint arrangement's net assets (in
which case it should be classified as a joint venture), or rights
to and obligations for specific assets, liabilities, expenses and
revenues (in which case it should be classified as a joint
operation). Having considered relevant factors including the
structure, legal form and contractual agreement governing the
arrangement, management determined that WiseWave should be
classified as a joint venture.
Share of losses in excess of interest
in WiseWave
If the Group's share of losses of a joint
venture equals or exceeds its interest in the joint venture, the
Group discontinues recognising its share of further losses. If the
Group's interest in a joint venture is reduced to nil, additional
losses are provided for, and a liability recognised, only to the
extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the joint venture. The
Group's share of WiseWave's losses amount to US$34.0m. The
remaining amount recognised as share of loss is the elimination of
unrealised profit on sales to WiseWave which is cumulatively
US$12.1m. As a result, the Group's interest in WiseWave has been
reduced to nil (2022: US$nil) and no provision has been recognised
on the basis that the Group does not have a constructive
obligation.
Unrealised profit on sales to
WiseWave
IAS 28 Investments in Associates and Joint
Ventures requires that unrealised profits and losses arising on
transactions between the Group and a joint venture are recognised
only to the extent of unrelated investors' interests in the joint
venture. Accordingly, the Group's share of its profit on
'downstream' sales to WiseWave is eliminated to the extent that the
related IP has not been utilised by WiseWave. IAS 28 is, however,
unclear on how this elimination should be recognised in profit or
loss. Management has used judgement in determining the Group's
accounting policy of making the elimination against the Group's
share of WiseWave's profit or loss rather than revenue arriving at
the Group's operating profit or loss and correspondingly against
its interest in the joint venture. IAS 28 is also unclear about the
elimination of unrealised gains on downstream sales in excess of
the Group's interest in a joint venture.
Essentially, there is an accounting policy
choice either to recognise the excess as deferred income or not to
recognise the excess at all. Management has used judgement in
deciding not to recognise the excess on the basis that it is
consistent with management's intention to exit the joint venture in
the medium term. If unrealised gains on sales to WiseWave had been
eliminated in full, the Group's loss before tax for the year ended
31 December 2023 would have been US$12.5m larger (2022: profit
before tax would have been US$2.3m lower) and there would be
cumulative deferred income of US$14.1m at the end of 2023 (2022:
US$2.3m). In prior periods, the elimination of downstream sales was
reflected within the Loss from joint venture category. However, an
alternative approach could have been to recognise this as a
reduction in revenue. Consequently, an amount of US$12.5m could
have been allocated to either revenue or loss from joint
venture.
Recoverability of contract asset with
WiseWave
At the end of 2023, the Group had completed its
performance obligations under the subscription licence agreement
with WiseWave relating to the provision of IP products to the
library of IP. A significant proportion of the consideration due
under the subscription licence agreement will be invoiced and
collected over the remainder of the term of the contract and, as a
result, a contract asset of US$42.4m has been recognised against
the contract.
Management have considered the recoverability of
this contract asset in the context of WiseWave's historic pattern
of settlements of accounts receivable with the Group, the
anticipated short- and medium-term funding requirements of WiseWave
and their prospects of securing such additional funding and actions
available to Alphawave in the event of non-payment by WiseWave of
the future billing milestones. Taking the above factors into
account, management have judged that the contract asset with
WiseWave is recoverable and therefore no provision in excess of
that determined by reference to the Group's expected credit loss
policy has been made against the contract asset. Had we judged that
the contract asset was not recoverable, contract assets would have
been up to US$42.4m lower and the Group's loss before tax would
have been up to US$42.4m lower as at and for the year ended 31
December 2023.
Uncertain tax
treatments
Uncertainty may exist concerning the tax
treatment of a specific item or group of items because of, for
example, uncertainty as to the meaning of tax law or to the
applicability of tax law to a particular transaction or
circumstance, the determination of appropriate arm's length pricing
in accordance with OECD transfer pricing principles or because the
amount of current and deferred tax depends on the results of an
ongoing or future examination of previously filed tax returns by
the tax authorities. Where such an uncertainty exists, management
is required to exercise judgement in forming its expectation of the
likely outcome of the examination of the uncertain tax treatment by
the relevant tax authorities. Due to the complexity of tax laws and
their interpretation, the amount ultimately agreed with the tax
authorities may differ materially from the amount of current and
deferred tax recognised in the consolidated financial
statements.
Key
sources of estimation uncertainty
Key sources of estimation uncertainty are those
that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year.
Revenue
recognition - Percentage of completion
We recognise revenue from contracts for the
provision of hard IP, customisation services and custom silicon
development projects over time by reference to the stage of
completion of the respective performance obligations. For hard IP
and related customisation, we measure the stage of completion based
on engineering hours spent on work performed to date as a
percentage of the estimated total project hours. For custom
silicon development projects, we measure the stage of completion
based on actual cost incurred to date as a percentage of the
estimated total project cost, where cost includes both external
costs, such as bought-in IP and manufacturing mask sets and
internal costs. Management is required to make estimates of the
attributable cost per engineering hour for internal costs in custom
silicon development projects and the number of hours required to
complete the project in both IP delivery and customisation
engagements and custom silicon development projects. These
estimates vary depending on factors including the contract type,
customer specifications, the maturity of the IP being licensed, the
complexity of the silicon being developed, whether the IP has
already been proven for integration in silicon products and whether
the contract deliverables are in their early or later
stages.
During 2023, we recognised revenue totalling
US$171.8m by reference to the stage of completion of projects. At
the end of 2023, the carrying amount of related contract assets and
contract liabilities was US$69.0m (2022: US$58.5m) and US$55.2m
(2022: US$96.9m) respectively. If the estimated number of
hours, or the estimated external costs required to complete these
projects was to change significantly, there could be a material
adjustment to the cumulative revenue recognised and the carrying
amount of contract balances during the next
financial year.
Revenue
recognition - Licensing agreement with
joint venture
We have a subscription licence agreement that
provides WiseWave with right of use over a library of our IP
products for a fixed fee spread over a period of five years ending
in 2026.
As explained in note 2, management estimates the
total number of IP products that it expects will be provided into
the library in order to calculate the estimated unit price of the
IP products. Moreover, since the estimated unit price of the IP
products constitutes variable consideration, management is required
to exercise judgement in applying constraints to the unit price 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
control of the IP product is transferred to WiseWave.
During 2023, the Group recognised revenue of
US$49.6m (2022: US$31.1m) from the subscription licence
agreement, following delivery of all remaining IP products under
the agreement to the library during the year. At the end of 2023,
the cumulative amount of revenue recognised from the agreement
amounted to US$108.4m. All IP products have now been delivered to
the library and management have judged that there will be no
further IP products provided. Based on this judgement, we no longer
consider there to be any estimation uncertainty associated with the
subscription licence agreement. The remaining revenue of US$0.6m to
be recognised under this agreement relates to the provision of
support services and associated revenue is recognised over time on
a straight-line basis as it represents a stand-ready
obligation.
Recoverability
of trade receivables and contract assets
We recognise an allowance for credit losses in
respect of trade receivables and contract assets measured as the
amount of the lifetime expected credit losses 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.
As at 31 December 2023, the Group's allowance
for expected credit losses was US$3.0m on trade receivables and
contract assets totalling US$5.1m. If the amount of actual credit
losses differs significantly from the lifetime expected credit
losses, there could be a material impact on the Group's results
within the next financial year.
Climate
change
In preparing the consolidated financial
statements, the Directors have considered the impact of climate
change on the Group and have concluded there is no material impact
on financial reporting judgements and estimates. This is consistent
with the assertion that risks associated with climate change did
not affect the business, its strategy and its financial performance
in 2023, and are not expected to have a material impact on the
longer‑term viability of the
Group.
4
Revenue
Disaggregation of
revenue
The Group has disaggregated revenue into various
categories in the following tables which is intended to depict how
the nature, amount, timing and uncertainty of revenue and cash
flows are affected by economic factors.
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Revenue by
type:
|
|
|
IP and NRE
|
100,676
|
76,123
|
IP and NRE - Reseller
|
-
|
3,270
|
IP and NRE - JV
|
66,891
|
58,207
|
Silicon and royalties
|
154,157
|
47,806
|
|
321,724
|
185,406
|
'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 five-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$49.6m (2022: US$31.1m) based on our deliveries of IP
to WiseWave. The remaining revenue from WiseWave relates to a
separate agreement signed in Q4 2021 to deliver chiplet IP and
revenue recognised through WiseWave acting as master reseller of IP
to VeriSilicon.
All revenue from VeriSilicon and related
balances are in respect of transactions signed with VeriSilicon as
reseller prior to the VeriSilicon reseller agreement moving under
WiseWave as master reseller effective from November 2021. All
revenue and associated balances in respect of transactions signed
with VeriSilicon since that date are now recognised through the
WiseWave joint venture line.
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Revenue by
region:
|
|
|
North America
|
82,160
|
51,361
|
China
|
190,376
|
104,755
|
APAC (ex-China)
|
33,459
|
16,980
|
EMEA
|
15,729
|
12,310
|
|
321,724
|
185,406
|
Revenues from customers which comprise greater
than 10% of the Group's total revenues are as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
China based customer
|
78,226
|
34,538
|
China based customer
|
66,891
|
58,207
|
US$117.9m (37% of total revenues) (2022:
US$90.7m, 49%) represent revenues recognised over time. Of the
US$117.9m revenue recognised over time, US$66.0m is subject to
estimation uncertainty. US$8.2m of contract assets and US$35.3m of
contract liabilities are also subject to estimation uncertainty.
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
subject to estimation uncertainty in 2023. If our estimates of
total hours or total costs had been 10% higher, these revenues
would be US$59.4m, contract assets would be US$7.4m and contract
liabilities would be US$38.8m. If our estimates of total hours or
total costs had been 10% lower, these revenues would be US$72.6m,
contract assets would be US$9.0m and contract liabilities would be
US$31.8m.
US$203.8m (63% of total revenues) (2022:
US$94.7m, 51%) 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 five-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 three-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. As described in note 3, the performance
obligations relating to the provision of IP products to the library
of IP have been completed as at the end of 2023 and the only
remaining revenue to be recognised under the subscription licence
agreement relates to the provision of support services. The
subscription licence agreement has a term of five years ending in
2026 and the subscription licence fees paid by WiseWave are
invoiced and collected regularly throughout the term. As all IP
licence revenue has now been recognised, a contract asset of
US$42.4m has been recognised against the contract (2022:
US$16.8m).
Contract assets and
liabilities
Below is a reconciliation of the movement in
contract assets during the period:
|
Year ended 31
December
|
|
|
Restated1
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
At the beginning of the year
|
58,534
|
31,719
|
Acquisition of subsidiaries
|
-
|
2,714
|
Revenue accrued in the period
|
61,182
|
56,231
|
Accrued revenue invoiced in the
period
|
(50,681)
|
(31,983)
|
Expected credit loss
|
(3,862)
|
(1,547)
|
Currency translation differences
|
-
|
(147)
|
At the end of
the year
|
65,173
|
56,987
|
Restated to allocate the expected credit loss
allowance between trade receivables from contracts with customers
and contract assets.
Below is a reconciliation of the movement in
contract liabilities, excluding the flexible spending account,
during the period:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
At the beginning of the year
|
91,733
|
12,661
|
Acquisition of subsidiaries
|
-
|
41,361
|
Revenue recognised in the period
|
(90,346)
|
(38,959)
|
Revenue deferred in the period
|
48,743
|
76,205
|
Currency translation differences
|
(24)
|
465
|
At the end of
the year
|
50,106
|
91,733
|
The deferred revenue balance is all expected to
be satisfied within twelve months of the balance sheet
date.
The flexible spending account, which is included
with contract liabilities on the face of the balance sheet, has
increased to US$5.9m as at 31 December 2023 from US$5.2m as at 31
December 2022. This represents a type of deferred income, and these
are contracts with customers who have committed to regular periodic
payments to us over the term of the contract. These payments are
not in respect of specific licences or other deliverables, but they
can be used as credit against future deliverables.
The balances related to costs to obtain
contracts from customers are as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Capitalised contract costs
|
1,920
|
874
|
The costs to obtain contracts from customers
include commissions. Amortisation of US$1.9m (2022: US$2.9m) and
impairment of US$nil (2022: US$nil) was charged to the profit or
loss in the period.
5 Research and
development expenses
Research and development expenses presented in
profit or loss were derived as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Research and development costs
incurred
|
131,441
|
78,011
|
Research and development expenditure
credits
|
(6,999)
|
(5,198)
|
Development costs
capitalised1
|
(46,226)
|
(3,455)
|
Total
|
78,216
|
69,358
|
The amount of US$46.2m capitalised in 2023
includes US$4.4m that has been capitalised in property and
equipment.
6 Other
operating (expense)/income
Other operating (expense)/income items were as
follows:
|
Year ended 31
December
|
|
2023
|
20221
|
|
US$'000
|
US$'000
|
Acquisition-related costs
|
(831)
|
(12,712)
|
Compensation element of Banias Labs deferred
cash rights (note 30)
|
(8,352)
|
(1,703)
|
Remeasurement of contingent consideration
payable for Precise-ITC (note 30)
|
-
|
(4,260)
|
Share-based compensation expense (note
27)
|
(40,691)
|
(15,695)
|
Currency translation (loss)/gain
|
(2,983)
|
36,838
|
Other operating
(expense)/income
|
(52,857)
|
2,468
|
There has been a change to the grouping of
operating expenses in 2022, specifically relating to the
compensation element of Banias deferred cash rights. This is shown
within other operating expenses/(income) in 2023 so we have changed
2022 operating expenses /(income) to be presented on the same basis
(see consolidated statement of comprehensive income and note
30).
7 Employee
benefit costs
Employee benefit costs incurred (before
deducting R&D expenditure credits and including costs that were
subsequently capitalised) were as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Wages and salaries
|
84,784
|
45,301
|
Social security costs
|
2,033
|
3,959
|
Defined contribution pension costs
|
4,115
|
1,300
|
Share-based compensation expense
|
40,691
|
15,695
|
Total
|
131,623
|
66,255
|
The average number of employees during the
period, analysed by category, was as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
Number
|
Number
|
Research and development/engineering
|
675
|
321
|
General and administration
|
55
|
29
|
Sales and marketing
|
28
|
11
|
Total
|
758
|
361
|
The number of employees at the period end,
analysed by category, was as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
Number
|
Number
|
Research and development/engineering
|
741
|
621
|
General and administration
|
58
|
57
|
Sales and marketing
|
30
|
17
|
Total
|
829
|
695
|
8 Auditor's
remuneration
The Group incurred the following amount to its
auditor in respect of the audit of the Group's financial statements
and for other non‑audit
services provided to the Group.
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Audit of the financial statements
|
3,472
|
1,713
|
Audit-related assurance services
|
268
|
124
|
|
3,740
|
1,837
|
An amount of US$1,078,000 included in the 2023
cost of the 'audit of the financial statements' row relates to
additional work in respect of the 2022 audit.
9 Finance
income and expense
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Finance
income
|
|
|
Interest income from contracts with customers
containing significant financing components
|
275
|
235
|
Interest on bank deposits
|
3,173
|
1,449
|
|
3,448
|
1,684
|
Finance
expense
|
|
|
Bank charges
|
(65)
|
-
|
Lease interest
|
(1,581)
|
(391)
|
Term loan interest
|
(16,489)
|
(3,134)
|
Term loan interest capitalised to the balance
sheet
|
9,534
|
|
NPV interest
|
-
|
(27)
|
Interest under IAS 19
|
(61)
|
-
|
IIA interest
|
(174)
|
(36)
|
|
(8,836)
|
(3,588)
|
Net finance
expense
|
(5,388)
|
(1,904)
|
10 Income
taxes
Income tax recognised in profit or
loss
The components of the Group's income tax expense
for the year were as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
tax
|
|
|
UK corporation tax
|
(2,642)
|
5,792
|
Adjustments to prior periods
|
3,167
|
(516)
|
Overseas tax
|
126
|
13,330
|
Total current
tax
|
651
|
18,606
|
Deferred tax
|
|
|
Origination and reversal of timing
differences
|
10,881
|
(278)
|
Total deferred
tax
|
10,881
|
(278)
|
Income tax
expense
|
11,532
|
18,328
|
Factors affecting the income tax expense
for the year
Tax on the profit or loss for the year comprises
current and deferred tax. Tax is recognised in the profit and loss
account except to the extent that it relates to items recognised
directly in equity or other comprehensive income, in which case it
is recognised directly in equity or other comprehensive income. For
income tax arising on dividends, the related tax is recognised in
the income statement, statement of other comprehensive income, or
in equity consistently with the transactions that generated the
distributable profits. The Company has determined that the global
minimum top-up tax - which is required to pay under Pillar Two
legislation - is an income tax in the scope of IAS 12. The Company
has applied a temporary mandatory relief from deferred tax
accounting for the impacts of the top-up tax and accounts for it as
a current tax when it is incurred.
The Group's income tax expense differed from the
amount that would have resulted from applying the standard rate of
UK corporation tax to the Group's profit before income taxes for
the following reasons:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
(Loss)/profit
before tax
|
(39,470)
|
17,242
|
(Loss)/profit before tax at the UK corporation
tax rate of 23.52% (2022: 19%)
|
(9,283)
|
3,275
|
Effects of:
|
|
|
Share-based compensation
|
7,267
|
3,141
|
Expenses not deductible for tax
purposes
|
3,171
|
1,964
|
Under/(over) accrual of prior year
provision
|
3,167
|
(516)
|
Different tax rates applied in overseas
jurisdictions
|
667
|
3,469
|
Share of joint venture's loss
|
3,465
|
3,511
|
Movement in unrecognised deferred tax
assets.
|
2,146
|
3,281
|
Other tax items
|
932
|
203
|
Income tax
expense
|
11,532
|
18,328
|
Factors affecting the income tax expense
in future years
A blended UK corporation tax rate of 23.52% is
used for 31 December 2023 due to the change in the UK corporation
tax rate to 25% from 1 April 2023, from the previously enacted 19%,
announced at the Budget on 3 March 2021, and substantively enacted
on 24 May 2021. The deferred taxation balances have been measured
using the rates expected to apply in the reporting periods when the
timing differences reverse.
There have been no legislative changes announced
in 2023 in relation to Canadian or US tax rates which will affect
the Group.
Deferred tax
The movement on the deferred tax account is as
shown below:
|
Year ended 31
December
|
|
|
Restated1
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
At the beginning of the year
|
11,110
|
422
|
Purchase of businesses
|
-
|
15,234
|
Charge/(credit) to profit or loss
|
10,881
|
(278)
|
(Credit) to OCI
|
(409)
|
-
|
Transfer of tax credits
|
-
|
(4,350)
|
Currency translation differences
|
(2)
|
82
|
Other
|
(721)
|
-
|
At the end of
the year
|
20,859
|
11,110
|
Restated to reflect the purchase price
allocation on the acquisition of OpenFive (see note 30)
The deferred tax account is made up as
follows:
|
Year ended 31
December
|
|
|
Restated1
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Accelerated capital allowances
|
5,720
|
676
|
Leases
|
(334)
|
(65)
|
Intangibles
|
22,429
|
26,947
|
Non-capital loss
|
(7,193)
|
(13,613)
|
Transfer of tax credits
|
-
|
(4,350)
|
Other temporary differences
|
237
|
1,515
|
Total
|
20,859
|
11,110
|
Restated to reflect the purchase price
allocation on the acquisition of Open Five (see note 30)
The deferred tax account is in a net liability
position, all positive numbers indicate an increase in the deferred
tax liability.
As at 31 December 2023, the Group has a deferred
tax asset of US$12.1m (2022 restated: US$2.7m) and a deferred tax
liability of US$32.9m (2022 restated: US$13.8m). 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$12.1m (2022 restated: US$2.7m) and a
deferred tax liability of US$32.9m (2022 restated: US$13.8m) in the
consolidated statement of financial position.
The Group has unrecognised deductible temporary
differences of US$126.7m. This is primarily made up of US Federal
losses (US$30.5m), US State losses (US$45.8m) and Stock based
compensation (US$24.2m). The Group has not recognised the
deductible temporary differences due to the lack of historical and
future profitability. The Group has recognised deferred tax assets
in entities that have suffered losses in the current year. The
evidence relied upon to record the deferred tax assets relates to
reversing taxable temporary differences and the entities which had
deferred tax assets are expected to be profitable
in the future.
11
Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by
dividing net income/(loss) for the period by the weighted average
number of ordinary shares in issue during the period.
Diluted earnings/(loss) per share is calculated
after adjusting the weighted average number of ordinary shares used
in the calculation of basic earnings/(loss) per share to include
the weighted average number of ordinary shares that would be issued
on conversion of all dilutive potential ordinary shares. Potential
ordinary shares comprise share options and RSUs outstanding under
the Company's share-based compensation plans.
|
Year ended 31
December
|
(US$ thousands except number of
shares)
|
2023
|
2022
|
Numerator:
|
|
|
Net (loss) for the year
|
(51,002)
|
(1,086)
|
Denominator:
|
|
|
Weighted average number of ordinary shares for
basic earnings/(loss) per share
|
705,550,299
|
679,849,437
|
Adjustment for dilutive share options and
RSUs
|
-
|
-
|
Weighted average number of ordinary shares for
diluted earnings/(loss) per share
|
705,550,299
|
679,849,437
|
Basic
earnings/(loss) per share (US$ cents)
|
(7.23)
|
(0.16)
|
Diluted
earnings/(loss) per share (US$ cents)
|
(7.23)
|
(0.16)
|
Potential ordinary shares are not treated as
dilutive if their conversion to ordinary shares would decrease a
loss per share from continuing operations. Consequently, in both
2023 and 2022, basic loss per share and diluted loss per share were
the same.
12
Goodwill
|
Year ended 31
December
|
|
|
Restated1
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Carrying
amount
|
|
|
At the beginning of the year
|
309,199
|
-
|
Acquisition of subsidiaries
|
-
|
331,886
|
Finalisation of OpenFive PPA
|
-
|
(12,437)
|
Increase in consideration for S338
election
|
-
|
5,610
|
Reversal of deferred tax liability
|
-
|
(15,860)
|
At the end of
the year
|
309,199
|
309,199
|
Restated to reflect the purchase price
allocation on the acquisition of OpenFive (see note 30)
Goodwill is denominated in US dollars and
therefore there are no currency translation differences.
The 2022 goodwill figure has been restated for
the finalisation of the OpenFive purchase price allocation
resulting in a reduction in goodwill of US$12,437,000 and
recognition of a receivable of US$12,437,000. The 2022 goodwill
figure has further been restated for the increase in consideration
from the S338 election where we increased goodwill by US$5,610,000
and reduced the investment in Alphawave Semi Inc. (formerly
Open-Silicon Inc.) by US$5,610,000 and the reversal of a deferred
tax liability where we reduced goodwill by US$15,860,000 and
reduced the deferred tax liability by US$15,860,000. More
information is available in note 30. All these adjustments are
reflected in the restated 31 December 2022 balance
sheet.
Goodwill is tested for impairment annually and
whenever there is an indication that it may be impaired. Goodwill
is tested for impairment at the level of the cash-generating unit
(CGU) or group of CGUs to which it is allocated. Our business model
is such that our IP is leveraged across the channels through which
we provide our products and services to customers, i.e. IP
licensing, custom silicon or own products. Given this
interdependence of the Group's operations, management considers
that the Group's business constitutes only one CGU because there is
no asset or group of assets within the business 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 below Group level. Goodwill is therefore
tested for impairment at Group level based on the fair value less
costs of disposal or value-in-use of the Group as a
whole.
In 2023, the Group's fair value less costs of
disposal was higher than its carrying amount and therefore we
concluded that no impairment of goodwill was required. Management
considers that the Group comprises a single CGU and therefore
goodwill is tested for impairment at the level of this single CGU,
i.e. at Group level. The Company's shares are listed on the London
Stock Exchange and its market capitalisation is therefore the most
reliable measure of fair value (a 'Level 1' fair value). To test
goodwill for impairment, we used the Company's market
capitalisation as at 29 December 2023 (the last trading day of
2023) less assumed costs of disposal of 3%.
In 2022, 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 exceeding 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.
13 Other
intangible assets
|
Developed
|
Developed
|
Customer
|
RISC-V
|
Other
|
|
|
IP
|
technology
|
relationships
|
licences
|
intangibles
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
Cost
|
|
|
|
|
|
|
As at 1 January 2022
|
1,167
|
-
|
-
|
-
|
-
|
1,167
|
Acquisition of subsidiaries
(note 30)
|
38,887
|
83,900
|
25,700
|
5,200
|
386
|
154,073
|
Additions
|
4,343
|
4,255
|
-
|
-
|
3,747
|
12,345
|
Currency translation differences
|
(49)
|
-
|
-
|
-
|
-
|
(49)
|
As at 31 December 2022
|
44,348
|
88,155
|
25,700
|
5,200
|
4,133
|
167,536
|
Additions
|
-
|
54,539
|
-
|
-
|
1,825
|
56,364
|
Re-classify to property
and equipment
|
(1,162)
|
-
|
-
|
-
|
-
|
(1,162)
|
Re-classification of intangibles
|
-
|
2,947
|
-
|
-
|
(2,947)
|
-
|
Currency translation differences
|
-
|
-
|
--
|
-
|
-
|
-
|
As at 31
December 2023
|
43,186
|
145,641
|
25,700
|
5,200
|
3,011
|
222,738
|
Accumulated
amortisation
|
|
|
|
|
|
|
As at 1 January 2022
|
-
|
-
|
-
|
-
|
-
|
-
|
Amortisation charge for
|
|
|
|
|
|
|
the year
|
4,730
|
-
|
714
|
347
|
368
|
6,159
|
Currency translation differences
|
(29)
|
-
|
-
|
-
|
-
|
(29)
|
As at 31 December 2022
|
4,701
|
-
|
714
|
347
|
368
|
6,130
|
Amortisation charge for
|
|
|
|
|
|
|
the year
|
10,112
|
-
|
2,142
|
1,040
|
-
|
13,294
|
Currency translation differences
|
-
|
-
|
-
|
-
|
-
|
-
|
As at 31
December 2023
|
14,813
|
-
|
2,856
|
1,387
|
368
|
19,424
|
Carrying
amount
|
|
|
|
|
|
|
As at 31 December 2022
|
39,647
|
88,155
|
24,986
|
4,853
|
3,765
|
161,406
|
As at 31
December 2023
|
28,373
|
146,441
|
22,844
|
3,813
|
1,843
|
203,314
|
Developed technology consists of intangible
assets that are still under development and are not yet available
for use. The US$54.5m additions to developed technology is
mainly made up of capitalised labour and contractor costs in the
amount of US$41.8m (note 5) and term loan interest of US$9.5m that
has been capitalised (note 9).
The acquired intangibles within the developed IP
category are amortised over four years.
14 Property and
equipment - owned
|
Computer
|
Furniture
|
Leasehold
|
Laboratory
|
|
|
equipment
|
and
fixtures
|
improvements
|
equipment
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
Cost
|
|
|
|
|
|
As at 1 January 2022
|
2,088
|
62
|
404
|
-
|
2,554
|
On acquisition of subsidiaries
|
913
|
111
|
264
|
1,279
|
2,567
|
Additions
|
10,128
|
286
|
1,261
|
93
|
11,768
|
Currency translation differences
|
(5)
|
(1)
|
(6)
|
-
|
(12)
|
As at 31 December 2022
|
13,124
|
458
|
1,923
|
1,372
|
16,877
|
Acquisition of subsidiaries
|
-
|
-
|
-
|
-
|
-
|
Additions
|
8,488
|
824
|
2,349
|
6,907
|
18,568
|
Re-classify from intangible assets
|
-
|
-
|
-
|
1,162
|
1,162
|
Currency translation differences
|
-
|
-
|
-
|
-
|
-
|
As at 31
December 2023
|
21,612
|
1,282
|
4,272
|
9,441
|
36,607
|
Accumulated
depreciation
|
|
|
|
|
|
As at 1 January 2022
|
766
|
31
|
131
|
-
|
928
|
Depreciation charge for the year
|
1,886
|
58
|
456
|
72
|
2,472
|
Currency translation differences
|
16
|
9
|
31
|
-
|
56
|
As at 31 December 2022
|
2,668
|
98
|
618
|
72
|
3,456
|
Depreciation charge for the year
|
8,921
|
259
|
810
|
1,222
|
11,212
|
Depreciation charged to the P&L then
capitalised
|
-
|
-
|
-
|
1,285
|
1,285
|
Currency translation differences
|
-
|
-
|
-
|
-
|
-
|
As at 31
December 2023
|
11,589
|
357
|
1,428
|
2,579
|
15,953
|
Carrying
amount
|
|
|
|
|
|
As at 31 December 2022
|
10,456
|
360
|
1,305
|
1,300
|
13,421
|
As at 31
December 2023
|
10,023
|
925
|
2,844
|
6,862
|
20,654
|
Laboratory equipment includes additions of
US$5.6m of test chips used for R&D projects that are not yet
being depreciated.
15 Property and
equipment - leased
Nature of leasing activities (as
lessee)
The Group leases all of its product development
and office facilities in the various countries in which it
operates. Property leases that have been entered into by the
Group contain varied terms and conditions reflecting its business
requirements and local market practices. Property leases are
typically for a fixed term of approximately five years but may
include extension or early termination options to provide the Group
with operational flexibility. Property rentals are typically
fixed on inception of the lease but may be subject to review
during the lease term to reflect changes in market rental
rates.
The Group also leases office and other
equipment.
Movements on right-of-use assets recognised in
relation to leased property and equipment were as
follows:
|
Buildings
|
Equipment
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
Cost
|
|
|
|
As at 1 January 2022
|
8,460
|
2,579
|
11,039
|
Acquisition of subsidiaries
|
2,786
|
-
|
2,786
|
Additions
|
4,308
|
3,023
|
7,331
|
Currency translation differences
|
(248)
|
(104)
|
(352)
|
As at 31 December 2022
|
15,306
|
5,498
|
20,804
|
Additions
|
5,265
|
608
|
5,873
|
Disposals
|
(551)
|
-
|
(551)
|
Currency translation differences
|
(3)
|
-
|
(3)
|
As at 31
December 2023
|
20,017
|
6,106
|
26,123
|
Accumulated
depreciation
|
|
|
|
As at 1 January 2022
|
1,852
|
1,515
|
3,367
|
Depreciation charge for the year
|
1,706
|
1,330
|
3,036
|
Currency translation differences
|
(90)
|
(62)
|
(152)
|
As at 31 December 2022
|
3,468
|
2,783
|
6,251
|
Depreciation charge for the year
|
3,006
|
1,606
|
4,612
|
Disposals
|
-
|
-
|
-
|
Currency translation differences
|
(2)
|
-
|
(2)
|
As at 31
December 2023
|
6,472
|
4,389
|
10,861
|
Carrying
amount
|
|
|
|
As at 31 December 2022
|
11,838
|
2,715
|
14,553
|
As at 31
December 2023
|
13,545
|
1,717
|
15,262
|
Lease liabilities
Movements on the lease liabilities recognised in
relation to leased property and equipment were as
follows:
|
US$'000
|
As at 1 January 2022
|
7,828
|
Acquisition of subsidiaries
|
2,616
|
Additions
|
7,196
|
Interest expense
|
391
|
Lease payments
|
(3,038)
|
Currency translation differences
|
(60)
|
As at 31 December 2022
|
14,933
|
Additions
|
5,385
|
Disposals
|
-
|
Interest expense
|
1,581
|
Lease payments
|
(4,740)
|
Currency translation differences
|
(479)
|
As at 31
December 2023
|
16,680
|
Lease liabilities were presented in the balance
sheet as follows:
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
|
3,953
|
3,756
|
Non-current
|
12,727
|
11,177
|
Total lease liabilities
|
16,680
|
14,933
|
Expenses recognised in relation to lease
payments that were not included in the measurement of lease
liabilities were as follows:
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Expense relating to short-term leases and
low-value lease expense
|
716
|
1,769
|
Expense relating to variable lease payments not
included in lease liabilities
|
-
|
19
|
|
716
|
1,788
|
Cash
outflow on lease payments
The total cash outflow on lease payments was as
follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Cash flow from
financing activities
|
|
|
Lease payments included in lease
liabilities
|
4,740
|
3,038
|
Cash flow from
operating activities
|
|
|
Variable lease payments not included in lease
liabilities
|
-
|
19
|
Lease payments on short-term leases and leases
of low-value assets
|
716
|
1,769
|
Total cash
outflow on lease payments
|
5,456
|
4,826
|
16 Investment
in joint venture
As at 31 December 2023, the Group held a 42.5%
ownership interest in WiseWave Technology Co., LTD ('WiseWave'), a
supplier of semiconductor devices based in China. WiseWave's
registered office is at Room 105, No. 6, Baohua Road, Hengqin New
District, Zhuhai, China.
Movements in the carrying amount of the Group's
investment in WiseWave were as follows:
|
US$'000
|
Carrying
amount
|
|
As at 1 January 2022
|
9,421
|
Additional investment
|
9,060
|
Loss from joint venture
|
(18,481)
|
As at 31 December 2022
|
-
|
Additional investment
|
14,730
|
Loss from joint venture
|
(14,730)
|
As at 31
December 2023
|
-
|
During 2023 and 2022, the Group and the other
shareholders in WiseWave increased their investment by subscribing
for new ordinary shares in proportion to their existing ownership
interests.
As at 31 December 2023, the cumulative amount of
the Group's share of WiseWave's losses amounts to US$34.0m.
The remaining amount recognised as share of loss is the
elimination of unrealised profit on sales to WiseWave which is
cumulatively US$12.1m. As a result, the Group's interest in
WiseWave has been reduced to nil and no provision has been
recognised for the excess of the Group's share of WiseWave's losses
over the carrying amount of the investment on the basis that the
Group does not have a constructive obligation. As at 31 December
2022, the cumulative amount of the Group's share of WiseWave's
losses was not greater than the carrying amount of the investment
and therefore, in accordance with the Group's accounting policy,
the elimination of gains from sales to WiseWave was recognised only
to the extent of reducing the carrying amount of the investment to
nil.
During 2023, the Group recognised revenue of
US$49.6m (2022: US$31.1m) on delivery of IP licences under the
subscription licence agreement with WiseWave. In accordance with
the Group's accounting policy, to the extent that WiseWave has not
yet utilised the IP, we have eliminated the Group's share of its
profit on the licences. Such elimination is made against the
carrying amount of the investment in WiseWave, but only insofar as
it is reduced to nil. As at 31 December 2023, the cumulative amount
of profit so eliminated was nil (2022: US$2.4m). This is due to the
cumulative share of loss in itself already reducing the investment
to nil, which was not the case at 31 December 2022. We still expect
that the profit eliminated to date will be recognised during the
remainder of the five-year subscription licence agreement ending in
2026.
The following tables summarise financial
information of WiseWave taken from its own financial statements and
adjusted in accordance with the Group's accounting
policies:
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current assets
|
23,766
|
18,536
|
Property and equipment
|
5,043
|
1,908
|
Intangible assets
|
53,774
|
71,331
|
Other non-current assets
|
2,176
|
4,883
|
Current liabilities
|
34,411
|
27,351
|
Non-current liabilities
|
24,588
|
42,317
|
Included in the above amounts are:
|
|
|
Cash and cash equivalents
|
13,700
|
15,729
|
Current financial liabilities (excluding trade
payables)
|
-
|
-
|
Non-current financial liabilities (excluding
trade payables)
|
-
|
-
|
Net assets
(100%)
|
25,759
|
26,990
|
Group share of
net assets (42.5%)
|
10,948
|
11,471
|
Share of losses of joint venture recognised as a
liability
|
-
|
-
|
Share of unrealised profits on IP licences to
joint venture not recognised
|
11,910
|
2,344
|
Carrying amount
of liability in joint venture
|
-
|
-
|
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Revenue
|
19,826
|
5,517
|
Loss from continuing operations
|
(35,930)
|
(37,764)
|
Included in
loss from continuing operations are:
|
|
|
Depreciation
and amortisation
|
(20,730)
|
(18,267)
|
Interest
expense
|
(2,171)
|
(2,936)
|
Other comprehensive income
|
-
|
-
|
Total
comprehensive expense (100%)
|
(35,930)
|
(37,764)
|
Group share of
total comprehensive expense (42.5%)
|
(15,270)
|
(16,050)
|
Reversal/(recognition) of share of unrealised
profits on IP licences to joint venture
|
540
|
(2,431)
|
Loss from joint
venture
|
(14,730)
|
(18,481)
|
17 Cash and
cash equivalents
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Cash at bank and in hand
|
101,291
|
186,231
|
18 Trade and
other receivables
|
As at 31
December
|
|
|
Restated1
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
|
|
|
Trade receivables from contracts with
customers
|
49,214
|
16,455
|
Less: Allowance for expected credit
losses
|
(5,635)
|
(637)
|
Trade
receivables - net
|
43,579
|
15,818
|
Restricted cash
|
17,843
|
18,295
|
Other receivables
|
16,667
|
13,030
|
Total
current
|
78,089
|
47,143
|
Non-current
|
|
|
Restricted cash
|
6,392
|
18,793
|
Other receivables
|
-
|
479
|
Total
non-current
|
6,392
|
19,272
|
Total trade and
other receivables
|
84,481
|
66,415
|
Restated to reflect the finalisation of the
purchase price allocation for the acquisition of OpenFive (notes 12
and 30) and to allocate the expected credit loss allowance between
trade receivables from contracts with customers and contract
assets.
Prepayments and capitalised contract costs are
shown within note 20.
Restricted cash comprises amounts held by
third-party paying agents in respect of deferred consideration and
future compensation amounts payable to employees of Precise ITC and
Banias Labs conditional on their remaining in the Group's
employment during the respective vesting periods, the last of which
expires during 2026. Cash held by the paying agent in relation to
amounts that are forfeited by the employees will be returned to the
Company.
19
Inventories
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Finished goods
|
4,248
|
3,616
|
Work in progress
|
5,737
|
10,413
|
Raw materials
|
1,637
|
4,032
|
Total
inventories
|
11,622
|
18,061
|
During 2023, an expense of US$0.6m (2022:
US$0.5m) was recognised in respect of the write-down of inventories
to net realisable value.
20 Other
assets
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
|
|
|
Prepayments
|
17,094
|
70,601
|
Capitalised contract costs
|
1,923
|
874
|
Total other
assets
|
19,017
|
71,475
|
Prepayments include advance payments to
foundries to reserve manufacturing capacity of US$5.1m (2022:
US$50.9m) that are largely covered by advance receipts from
customers.
21 Trade and
other payables
|
As at 31
December
|
|
|
Restated1
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
|
|
|
Trade payables
|
18,098
|
23,573
|
Accrued expenses
|
33,553
|
34,322
|
Social security and other taxes
|
195
|
1,204
|
Contingent consideration
|
-
|
5,000
|
Other payables
|
17,439
|
24,566
|
Total
current
|
69,285
|
88,665
|
Non-current
|
|
|
Other payables
|
1,775
|
10,555
|
Total
non-current
|
1,775
|
10,555
|
Total trade and
other payables
|
71,060
|
99,220
|
Restated to reflect the finalisation of the
purchase price allocation for the acquisition of OpenFive (notes 12
and 30).
Other payables include US$10.4m (2022: US$10.5m)
deferred consideration and compensation payable to employees of
Banias Labs. US$5.5m (2022: US$5.5m) relates to an NRE project that
has been put on hold due to the ongoing war in Ukraine. US$2.6m
(2022: US$2.6m) relates to a prepayment from a customer where a
project has been cancelled and this will be refunded in
2024.
22 Loans and
borrowings
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
|
|
|
Term Loan
|
5,625
|
5,000
|
Non-current
|
|
|
Revolving Credit Facility
|
125,000
|
110,000
|
Term Loan
|
88,125
|
93,750
|
Israel Innovation Authority
|
1,625
|
1,451
|
Total loans and
borrowings
|
220,375
|
210,201
|
In October 2022, the Group entered into a Credit
Agreement with a syndicate of banks that provided it with a US
dollar‑denominated Delayed
Draw Term Loan B ('Term Loan') facility of US$100.0m and a
multi-currency Revolving Credit Facility (RCF) of
US$125.0m.
In October 2022, the Group drew the Term Loan
facility in full and US$110.0m from the RCF in connection with the
acquisition of Banias Labs. The Group drew the remaining US$15.0m
of the RCF in May 2023.
Both the Term Loan facility and the RCF mature
in October 2027. We are required to repay a percentage of the
principal amount of the Term Loan outstanding at the end of each
calendar quarter prior to maturity. We repaid the first instalment
of US$1,250,000 in December 2022 and repaid four quarterly
instalments totalling US$5,000,000 during 2023. Based on the
principal amount of the Term Loan outstanding at the end of 2023,
we are scheduled to repay US$5,625,000 during 2024, US$7,500,000
during 2025, US$8,125,000 during 2026 and the remaining
US$72,500,000 during 2027. We have the option to prepay some or all
of the outstanding principal amount of the Term Loan at any time
prior to maturity without premium or penalty.
We may, at any time, on one or more occasions,
add to the principal amount of the Term Loan and/or the RCF by way
of an Incremental Facility Amendment, provided that the increment
is less than US$5.0m and the aggregate outstanding principal amount
of all incremental Term Loan amounts would not thereby exceed the
higher of US$60.0m and the Consolidated Adjusted EBITDA for the
twelve months preceding the end of the most recent calendar
quarter.
Our borrowings under the Credit Agreement and
Incremental Facility Amendment were initially subject to two
financial covenants that are normally tested quarterly: the Net
Leverage Ratio (the ratio of Consolidated Total Debt at the end of
each quarter to Consolidated Adjusted EBITDA for the preceding
twelve months) and the Fixed Charges Coverage Ratio (the ratio of
Consolidated Cash Flow to Consolidated Fixed Charges for the
preceding twelve months) as defined in the Credit Agreement. The
maximum permitted Net Leverage Ratio was 3.75 times up to the
period ended 30 June 2023, 3.5 times up to the period ending 31
March 2024 and is 3.0 times thereafter until maturity of the
facilities. The minimum permitted Fixed Charges Coverage Ratio was
initially 1.25 times over the term of the facilities.
For the test period ended on 30 June 2023, the
Fixed Charges Coverage Ratio was below the minimum permitted level.
On 22 September 2023, we agreed with the lenders an amendment to
the Credit Agreement which suspends the Fixed Charges Coverage
Ratio from the period ended 30 September 2023 to the period ending
30 June 2024, after which it is set at 1.1 times until the period
ending 30 September 2025 when it reverts to 1.25 times. When the
Fixed Charges Coverage Ratio resumes, the test periods ending on 30
September 2024, 31 December 2024 and 31 March 2025 are shortened to
the preceding three, six and nine-month periods,
respectively.
While there were no changes affecting the Net
Leverage Ratio test, the amendment to the Credit Agreement
introduced a Minimum Liquidity Requirement whereby the average
daily closing balance of cash and cash equivalents plus any unused
portion of the Revolving Credit Facility during any month and the
closing balance on the last day of each month must not be less than
US$75.0m for any test period ending on or prior to 31 December 2023
and not less than US$45.0m for any test period ending thereafter
until 30 September 2025.
The Group met both of the applicable financial
covenants for the test periods ended on 30 September 2023 and
31 December 2023.
Both the Term Loan and amounts currently drawn
under the RCF bear interest at floating rates of interest based on
the Secured Overnight Financing Rate (SOFR) for the relevant tenor
and adjusted according to the Group's Total Net Leverage
ratio.
Changes in liabilities arising from financing
activities were as follows:
|
Loans and
|
Interest
|
Lease
|
|
|
borrowings
|
payable
|
liabilities
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
As at 1 January 2022
|
-
|
-
|
7,828
|
7,828
|
Acquisition of subsidiaries
|
1,451
|
-
|
2,616
|
4,067
|
Financing cash inflow/(outflow)
|
208,750
|
(650)
|
(3,038)
|
205,062
|
Currency translation differences
|
-
|
-
|
(60)
|
(60)
|
Other movements
|
-
|
3,134
|
7,587
|
10,721
|
As at 31 December 2022
|
210,201
|
2,484
|
14,933
|
227,618
|
Financing cash inflow/(outflow)
|
10,000
|
(18,390)
|
(4,740)
|
(13,130)
|
Currency translation differences
|
174
|
-
|
(40)
|
134
|
Other movements
|
-
|
16,053
|
6,527
|
22,580
|
As at 31
December 2023
|
220,375
|
147
|
16,680
|
237,202
|
23 Measurement
of financial instruments
Analysis by class and
category
We set out below the carrying amount of
financial assets and liabilities held by the Group by class and
measurement category and their estimated fair value at the balance
sheet date:
|
As at 31 December
2023
|
|
Carrying amount
|
Fair
|
|
Amortised
|
value
|
|
cost
|
US$'000
|
|
US$'000
|
|
Financial
assets
|
|
|
Cash and cash equivalents
|
101,291
|
101,291
|
Trade and other receivables
|
103,498
|
103,498
|
Contract assets
|
65,173
|
65,173
|
Total financial
assets
|
269,962
|
269,962
|
Financial
liabilities
|
|
|
Trade and other payables
|
(71,060)
|
(71,060)
|
Lease liabilities
|
(16,680)
|
(16,680)
|
Loans and borrowings
|
(220,375)
|
(220,375)
|
Total financial
liabilities
|
(308,115)
|
(308,115)
|
|
Restated as at 31
December 20221
|
|
Carrying
amount
|
|
|
|
At fair
value
|
|
|
|
Amortised
|
through
|
|
Fair
|
|
cost
|
profit or
loss
|
Total
|
value
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
Financial
assets
|
|
|
|
|
Cash and cash equivalents
|
186,231
|
-
|
186,231
|
186,231
|
Trade and other receivables
|
137,890
|
-
|
137,890
|
137,890
|
Contract assets
|
56,987
|
-
|
56,987
|
56,987
|
Total financial
assets
|
381,108
|
-
|
381,108
|
381,108
|
Financial
liabilities
|
|
|
|
|
Trade and other payables
|
(94,220)
|
(5,000)
|
(99,220)
|
(99,220)
|
Lease liabilities
|
(14,933)
|
-
|
(14,933)
|
(14,933)
|
Loans and borrowings
|
(210,201)
|
-
|
(210,201)
|
(210,201)
|
Total financial
liabilities
|
(319,354)
|
(5,000)
|
(324,354)
|
(324,354)
|
Restated to reflect the finalisation of the
purchase price allocation for the acquisition of OpenFive (notes 12
and 30) and to allocate the expected credit loss allowance between
trade receivables from contracts with customers and contract
assets.
Financial instruments carried at fair
value
During the periods under review, all financial
instruments held by the Group were carried at amortised cost except
for the contingent consideration liability recognised in relation
to the acquisition of Precise-ITC that was carried at fair value
through profit or loss.
Financial instruments that are carried at fair
value are categorised into one of three levels in a fair value
hierarchy according to the nature of the significant inputs to the
valuation techniques that are used to determine their fair value as
follows:
·
Level 1 - Quoted (unadjusted) market price in active markets
for identical assets or liabilities;
·
Level 2 - Inputs other than Level 1 that are observable
either directly (as market prices) or indirectly (derived from
market prices); and
·
Level 3 - Unobservable inputs, such as those derived from
internal models or using other valuation methods.
Contingent consideration in respect of the
acquisition of Precise-ITC was dependent on the aggregate value of
Precise's IP Core revenue and bookings exceeding US$10,000,000
during 2022. We determined the acquisition date fair value of the
liability using an option pricing model based on a range of
possible outcomes for Precise's IP Core revenue and bookings. Since
the inputs to the fair value calculation were therefore largely
unobservable, the fair value of the liability on initial
recognition was a Level 3 fair value. Precise's actual IP Core
revenue and bookings during 2022 significantly exceeded our
expectations at the acquisition date. As at 31 December 2022, we
therefore increased the liability to the maximum amount payable of
US$5,000,000. We paid this amount to the vendors in May
2023.
Movements in the liability for contingent
consideration were as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Contingent
consideration
|
|
|
At the beginning of the year
|
(5,000)
|
-
|
Acquisition of Precise-ITC
|
-
|
(740)
|
Change in estimate (other operating
expenses)
|
-
|
(4,260)
|
Settlements
|
5,000
|
-
|
At the end of the year
|
-
|
(5,000)
|
Financial instruments not carried at
fair value
We are required to disclose the fair value of
those financial instruments that are not carried at fair
value.
Cash and cash equivalents, trade and other
receivables, contract assets and trade and other payables (other
than contingent consideration) are of short maturity and/or bear
interest at floating rates. We therefore consider that their
carrying amounts approximate to their fair value (Level
2).
We have calculated the fair value of lease
liabilities by discounting the future lease payments at the
relevant lessee's incremental borrowing rate based on observable
yield curves at the balance sheet date (Level 2).
With the exception of the Term Loan, we consider
that the carrying amount of loans and borrowings approximates to
their fair value. In the case of the Term Loan, its carrying amount
is stated net of the unamortised balance of issue costs and
therefore does not represent its fair value. Since the Term Loan
bears interest at a floating rate, we consider that the principal
amount of the loan outstanding approximates to its fair value
(Level 2).
24 Financial
risk management
Background
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 principal objectives of the Board are to
ensure adequate funding is available to meet the Group's
requirements and for maintaining an efficient capital structure,
together with managing the Group's counterparty credit risk,
interest rate risk and foreign currency exposures.
Credit risk
Credit risk is the risk that a customer or a
counterparty financial institution fails to meet its contractual
obligations as they fall due, causing the Group to incur a
financial loss. The Group is exposed to credit risk in relation to
receivables from its customers, contract assets and cash and cash
equivalents held with financial institutions.
Before accepting a new customer, we assess the
potential customer's credit quality and establish a credit limit.
Credit quality is assessed using data maintained by reputable
credit agencies, by checking references included in credit
applications and, where they are available, by reviewing the
customer's recent financial statements. Credit limits are subject
to authorisation and are reviewed on a regular basis.
We recognise an allowance for credit losses in
respect of trade receivables and contract assets measured as the
amount of the lifetime expected credit losses. We estimate the
expected credit loss on accounts receivable and contract assets
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.
When constructing the provision matrix, we grouped trade
receivables and contract assets based on credit risk factors
against which we applied differing loss rates. If we are aware of
specific factors relevant to risk of default of a customer, we may
apply a loss rate to balances receivable from that customer that
differs from that suggested by the provision matrix.
Information about the allowance for expected
credit losses by credit risk group was as follows:
|
As at 31 December 2023
|
As at 31 December
2022
|
|
Weighted-
|
Gross carrying
|
Loss
|
Weighted-
|
Gross
carrying
|
Loss
|
|
average
|
amount
|
allowance
|
average
|
amount
|
allowance
|
|
loss rate
|
US$'000
|
$'000
|
loss rate
|
US$'000
|
$'000
|
Start-up company based in developing
country
|
12%
|
45,311
|
5,620
|
1%
|
25,300
|
300
|
Other start-up companies
|
0%
|
21,658
|
85
|
6%
|
21,500
|
1,194
|
Established company based in developing
country
|
25%
|
11,261
|
2,772
|
2%
|
8,200
|
200
|
Other established companies
|
3%
|
40,019
|
1,020
|
2%
|
19,989
|
490
|
|
|
118,249
|
9,497
|
|
74,989
|
2,184
|
Movements in the allowance for expected credit
losses were as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
At the beginning of the year
|
2,184
|
-
|
Net remeasurement of loss allowance
|
7,337
|
2,184
|
Foreign exchange difference
|
(24)
|
-
|
At the end of the year
|
9,497
|
2,184
|
As at 31 December 2023, one customer accounted
for 14% (2022: 20%) of the aggregate balance of trade receivables
and contract assets. Management has no reason to believe that the
amounts owed by the customer are not fully collectible in
the future.
Cash and cash equivalents are placed, where
possible, with financial institutions that have a median credit
rating of not less than Aa3 (Moody's), AA- (Standard & Poor's),
AA- (Fitch) or equivalent. We regularly monitor the credit quality
of financial institutions with whom we have placed the Group's
funds. Credit risk is further limited by holding cash on deposits
with relatively short maturities.
Market risk
Market risk is the risk that the fair value of,
or cash flows associated with, a financial instrument will
fluctuate because of changes in market prices. Market risk
comprises three types of risk: interest rate risk (due to changes
in market interest rates), currency risk (due to changes in
currency exchange rates) and other price risk.
Interest rate risk
The interest rate profile of the Group's
financial assets and liabilities was as follows:
|
As at 31 December 2023
|
|
Interest bearing
|
|
|
|
|
Non-interest
|
|
|
Floating rate
|
Fixed rate
|
bearing
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
Cash and cash equivalents
|
65,443
|
1,457
|
34,391
|
101,291
|
Trade and other receivables and other
assets
|
-
|
-
|
103,498
|
103,498
|
Contract assets
|
-
|
-
|
65,173
|
65,173
|
Total financial
assets
|
65,443
|
1,457
|
203,062
|
269,962
|
Trade and other payables
|
-
|
-
|
(71,060)
|
(71,060)
|
Lease liabilities
|
-
|
-
|
(16,680)
|
(16,680)
|
Loans and borrowings
|
(220,375)
|
-
|
-
|
(220,375)
|
Total financial
liabilities
|
(220,375)
|
-
|
(87,740)
|
(308,115)
|
|
Restated as at 31
December 20221
|
|
Interest
bearing
|
|
|
|
|
|
Non-interest
|
|
|
Floating
rate
|
Fixed rate
|
bearing
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
Cash and cash equivalents
|
113,616
|
29,244
|
43,371
|
186,231
|
Trade and other receivables and other
assets
|
-
|
-
|
137,890
|
137,890
|
Contract assets
|
-
|
-
|
56,987
|
56,987
|
Total financial
assets
|
113,616
|
29,244
|
238,248
|
381,108
|
Trade and other payables
|
-
|
-
|
(99,220)
|
(99,220)
|
Lease liabilities
|
-
|
-
|
(14,933)
|
(14,933)
|
Loans and borrowings
|
(210,201)
|
-
|
-
|
(210,201)
|
Total financial
liabilities
|
(210,201)
|
-
|
(114,153)
|
(324,354)
|
Restated to reflect the finalisation of the
purchase price allocation for the acquisition of OpenFive (notes 12
and 30) and to allocate the expected credit loss allowance between
trade receivables from contracts with customers and contract
assets.
The Group's principal exposure to interest rate
risk is in relation to floating rate loans and borrowings and cash
deposits.
Currency
risk
Currency risk arises on financial instruments
that are denominated in a currency other than the functional
currency of the entity that holds them. The Company's functional
currency is pound sterling (GBP) and its principal subsidiaries
have different functional currencies, including Canadian dollar
(CAD), US dollar (USD), Israeli shekel (ILS), Indian rupee (INR)
and Chinese renminbi (RMB). Substantially all of the Group's
revenue and a significant proportion of its expenses are
denominated in US dollars. Accordingly, the Group is subject to
currency risk, particularly in those entities that have a
functional currency other than the US dollar.
The Group does not use derivative instruments to
reduce its exposure to currency risk.
The Group's exposure to currency risk was as
follows:
|
As at 31 December 2023
|
|
CAD
|
GBP
|
ILS
|
INR
|
RMB
|
TWD
|
USD
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
Cash and cash equivalents
|
632
|
41,957
|
133
|
473
|
2,756
|
210
|
55,130
|
101,291
|
Trade and other receivables and other
assets
|
20,376
|
902
|
596
|
1,055
|
6,211
|
72
|
74,286
|
103,498
|
Contract assets
|
-
|
-
|
-
|
-
|
66
|
-
|
65,107
|
65,173
|
Trade and other payables
|
(26,829)
|
(4,969)
|
(2,266)
|
(3,954)
|
(393)
|
(21)
|
(32,628)
|
(71,060)
|
Lease liabilities
|
(14,949)
|
-
|
(832)
|
(890)
|
(9)
|
-
|
--
|
(16,680)
|
Loans and borrowings
|
-
|
-
|
(1,625)
|
-
|
-
|
-
|
(218,750)
|
(220,375)
|
|
(20,770)
|
37,890
|
(3,994)
|
(3,316)
|
8,631
|
261
|
(56,855)
|
(38,153)
|
|
Restated as at 31
December 20221
|
|
CAD
|
GBP
|
ILS
|
INR
|
RMB
|
USD
|
Total
|
|
US$'000
|
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
|
51,877
|
186,231
|
Trade and other receivables and other
assets
|
-
|
-
|
-
|
1,572
|
23
|
136,295
|
137,890
|
Contract assets
|
-
|
-
|
-
|
-
|
-
|
56,987
|
56,987
|
Trade and other payables
|
(1,663)
|
(952)
|
(794)
|
(2,660)
|
(10,039)
|
(83,112)
|
(99,220)
|
Lease liabilities
|
(12,579)
|
-
|
(1,049)
|
(1,305)
|
-
|
-
|
(14,933)
|
Loans and borrowings
|
-
|
-
|
(1,451)
|
-
|
-
|
(208,750)
|
(210,201)
|
|
(20,890)
|
124,266
|
(2,461)
|
(428)
|
2,970
|
(46,703)
|
56,754
|
Restated to reflect the finalisation of the
purchase price allocation for the acquisition of OpenFive (notes 12
and 30) and to allocate the expected credit loss allowance between
trade receivables from contracts with customers and contract
assets.
When applied to financial instruments
denominated in foreign currencies held at the end of the year, the
effect on the Group's profit or loss before tax of a 5%
strengthening or weakening of those currencies against the relevant
functional currencies would have been as follows:
|
As at 31
December
|
|
2023
|
2022
|
Foreign currency
|
US$'000
|
US$'000
|
CAD
|
834/(834)
|
4,807/(4,807)
|
GBP
|
778/(778)
|
583/(583)
|
ILS
|
498/(498)
|
18/(18)
|
INR
|
26/(26)
|
187/(187)
|
RMB
|
632/(632)
|
90/(90)
|
USD
|
899/(899)
|
4,599/(4,599)
|
Other price
risk
Other price risk is market risk other than
interest rate risk or currency risk. The Group has no significant
exposure to other price risk.
Liquidity risk
Liquidity risk is the risk that an entity will
encounter difficulty in meeting obligations associated with its
financial liabilities.
In October 2022, the Company entered into a
Credit Agreement with a syndicate of banks that provided it with a
US dollar‑denominated Delayed
Draw Term Loan B ('Term Loan') facility of US$100.0m and a
multi-currency Revolving Credit Facility (RCF) of US$125.0m. As at
31 December 2023, the facilities were fully drawn.
The Credit Agreement contains various
provisions, covenants and representations that are customary for
such facilities. For the test period ended 30 June 2023, the
Fixed Charges Coverage Ratio was below the minimum required level.
As described in note 27, we subsequently agreed with the lenders an
amendment to the Credit Agreement such that testing of the Fixed
Charges Coverage Ratio would be suspended until 30 June 2024 and
thereafter the minimum required level would be reduced and the
length of the testing periods would be reduced until 30 September
2025. While there were no changes to the Net Leverage Ratio, the
amendment to the Credit Agreement introduced a Minimum Liquidity
Requirement which effectively set minimum required levels for cash
and cash equivalents. We currently monitor and forecast cash flows
on a weekly basis at both Group and entity level. As at 31 December
2023, cash and cash equivalents amounted to US$101.3m (2022:
US$186.2m). As explained in note 2, the Directors are satisfied
that the Group has sufficient liquidity to continue as a going
concern.
The following table sets out the contractual
maturities (representing undiscounted contractual cash flows) of
financial liabilities:
|
As at 31 December 2023
|
|
Due within
|
Due between
|
Due >
|
|
|
1 year
|
1 and 5 years
|
5 years
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
Trade and other payables
|
69,285
|
1,775
|
-
|
71,060
|
Lease liabilities
|
3,953
|
7,660
|
5,067
|
16,680
|
Loans and borrowings
|
5,625
|
214,750
|
-
|
220,375
|
|
78,863
|
224,185
|
5,067
|
308,115
|
|
Restated as at 31
December 20221
|
|
Due within
|
Due
between
|
Due >
|
|
|
1 year
|
1 and 5
years
|
5 years
|
Total
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
Trade and other payables
|
88,665
|
10,555
|
-
|
99,220
|
Lease liabilities
|
3,756
|
8,819
|
2,358
|
14,933
|
Loans and borrowings
|
5,000
|
205,201
|
-
|
210,201
|
|
97,421
|
224,575
|
2,358
|
324,354
|
Restated to reflect the finalisation of the
purchase price allocation for the acquisition of OpenFive (notes 12
and 30).
Capital management
The Group's capital is represented by its total
equity less net debt less lease liabilities. By this definition,
the Group's capital as at 31 December 2023 was US$ 332,144,000m
(2022: US$ 429,370,000m) as
follows:
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Total equity
|
467,908
|
468,273
|
Loans and borrowings
|
220,375
|
210,201
|
Cash and cash equivalents
|
(101,291)
|
(186,231)
|
Net debt
|
119,084
|
23,970
|
Lease liabilities
|
16,680
|
14,933
|
Total
capital
|
332,144
|
429,370
|
We seek to maintain a capital structure that
supports the ongoing activities of our business and its strategic
objectives in order to deliver long-term returns to shareholders.
We allocate capital to support organic and inorganic growth,
investing in research and development and our IP licensing and
product offerings. We fund our growth strategy using a mix of
equity and debt after giving consideration to prevailing market
conditions.
25
Post-employment benefits
Defined contribution
plans
The Group operates defined contribution pension
plans in most of the countries in which it operates. During 2023,
the Group recognised an expense of US$4,115,000 (2022:
US$1,300,000) for defined contribution plans. As at 31 December
2023, the Group had not paid contributions due to the plans
totalling US$nil (2022: US$3,000). All contributions due for the
year have since been paid to the plans.
Defined benefit plans
Prior to the acquisition of Open Silicon in
August 2022, the Group had no defined benefit plans. Open Silicon
operates unfunded gratuity and accrued leave plans in India that
provide employees with lump sum benefits on leaving employment that
are based on the individual's final salary and length of
service.
Prior to and immediately following the
acquisition, the benefit obligation was not measured on an
actuarial basis. During 2023, we engaged an independent qualified
actuary and the benefit obligation as at 31 December 2023 and the
amounts recognised in comprehensive income for the year are based
on the actuary's valuation of the plans that was prepared using the
projected unit credit method. Remeasurement of defined benefit
plans represents actuarial gains and losses relating to gratuity
and leave encashment.
Movements in the benefit obligation were as
follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
At the beginning of the year
|
821
|
-
|
Acquisition of Open Silicon (note 30)
|
-
|
323
|
Recognised in profit or loss:
|
|
|
Current service
cost
|
489
|
507
|
Interest expense
|
60
|
-
|
Recognised in other comprehensive
income:
|
|
|
Experience
adjustments
|
472
|
-
|
Change in financial
assumptions
|
735
|
-
|
Benefits paid by employer
|
(59)
|
(9)
|
Currency translation differences
|
(42)
|
-
|
At the end of the year
|
2,476
|
821
|
As at 31 December 2023, the principal
assumptions used in measuring the benefit obligation were as
follows:
Staff attrition rate - age less than 30
years
|
10.0% p.a.
|
Staff attrition rate - 31-44 years
|
5% p.a.
|
Staff attrition rate - 45 years and
above
|
3% p.a.
|
Mortality rate
|
IALM 2012-14
|
Rate of increase in salaries year 1
|
22.0% p.a.
|
Rate of increase in salaries year 2
|
15% p.a.
|
Rate of increase in salaries year 3
onwards
|
10% p.a.
|
Discount rate
|
7.4% p.a.
|
Mortality assumptions used in measuring the
benefit obligation were based on the Indian Assured Lives Mortality
2012-14 tables ('100% of IALM 2012-14') published by the Institute
of Actuaries in India.
Sensitivities of the benefit obligation to
reasonably possible changes in the principal assumptions are
immaterial to the consolidated financial statements.
26 Share
capital and reserves
Share capital and share premium
account
Share
capital
The Company's share capital is comprised of
ordinary shares with a nominal value of £0.01 per share.
The number of authorised, issued and fully paid
ordinary shares was as
follows:
|
Number
|
Nominal
value
|
|
of shares
|
US$'000
|
As at 1 January 2022
|
664,965,934
|
9,399
|
Shares issued under employee share
schemes
|
30,102,266
|
352
|
As at 31 December 2022
|
695,068,200
|
9,751
|
Shares issued under employee share
schemes
|
20,446,367
|
260
|
As at 31
December 2023
|
715,514,567
|
10,011
|
Shares issued during the
year
During 2023, 20,446,367 shares (2022: 29,442,453
shares) were issued on the exercise or vesting of awards made under
employee share schemes.
Since most of the awards were exercised or
vested at £0.01 cost to the employee, the cash proceeds received by
the Company on issue of the shares was equal to their aggregate
nominal value. During 2023, a notional bonus expense of US$70,000,
(2022: not material), calculated at the nominal value of £0.01
per share, was recognised in the profit or loss account and
credited to share capital.
Rights and restrictions
Ordinary shareholders have no entitlement to a
share in the profits of the Company except for dividends that may
be declared from time to time. All ordinary shares rank equally
with regard to the Company's residual assets in the event of a
liquidation.
Ordinary shareholders have the right to attend,
and vote at, general meetings of the Company or to appoint a proxy
to attend and vote at such meetings on their behalf. Ordinary
shareholders have one vote for every share held.
Share premium
account
The share premium account represents the
difference between the nominal value of shares in issue and the
fair value of the consideration received. For 2023 the amount
allocated to the share premium account is US$863,000 (2022:
US$775,000). The share premium account is not distributable
but may be used for certain purposes specified by United Kingdom
law, including to write off expenses on any issue of shares and to
pay up fully paid bonus shares.
Other reserves
Merger
reserve
In May 2021, the Company purchased the entire
issued share capital of Alphawave IP Inc., the Group's former
parent Company, by way of an exchange of shares in a Group
reorganisation that was accounted for as a merger. The merger
reserve represents the excess of the nominal value of the Company's
ordinary shares issued over the nominal value of Alphawave IP Inc's
common shares in issue at the date of the
reorganisation.
Share-based
payment reserve
The share-based payment reserve represents the
cost recognised to date in respect of share-based payment awards
that have not been exercised.
Currency
translation reserve
The currency translation reserve comprises gains
and losses arising on the translation of the results and financial
position of foreign operations from their functional currencies
into US dollars.
27 Share-based
payment
Prior to the Company's IPO in July 2021, options
and restricted stock units (RSUs) were granted to employees and
consultants to the Company and its subsidiaries under the Equity
Incentive Plan (EIP). Following the IPO, no further awards were
granted under the EIP and it was replaced by the Long Term
Incentive Plan (LTIP). Awards under the LTIP may take the form of
RSUs, options or restricted ordinary shares.
While the specific terms of awards may vary
according to individual grant agreements, options and RSUs granted
under the EIP and the LTIP typically vest over four years with 25%
vesting on the first anniversary of the grant date and the
remaining 75% vesting in equal monthly instalments thereafter until
the fourth anniversary of the grant date conditional on the
participant remaining in the Group's employment during the vesting
period and any performance conditions having been met. Unexercised
options granted under the EIP and the LTIP expire on the fifth and
tenth anniversary of the grant date, respectively. On exercise or
vesting, each option and RSU issued under the plans converts into
one ordinary share in the Company. Unexercised options and unvested
RSUs carry neither rights to dividends nor voting rights. No
amounts are paid or payable by the recipient on receipt of an RSU,
however, there are exercise costs paid or payable by the recipient
on receipt of an Option.
All options and RSUs outstanding under the plans
are equity-settled awards.
During 2023, 24,810,455 (2022: 23,109,685) RSUs
were granted under the LTIP. Since the Company does not expect to
pay dividends during the vesting period, the grant date fair value
of the awards was the market price of the Company's ordinary shares
on the grant date. The weighted-average grant date fair value of
the RSUs granted during the year was US$1.38 (2022: US$1.64).
During the periods under review, no options were granted under the
LTIP.
The number of options and RSUs outstanding and
the weighted-average price of the options and RSUs on the grant
date were as follows:
|
Year ended 31 December
2023
|
Year ended 31
December 2022
|
|
Number of awards
|
Weighted-average exercise price
(US$)1
|
Number of
awards
|
Weighted-average
exercise price (US$)
|
Outstanding at the beginning of the
year
|
85,692,153
|
0.712
|
95,273,220
|
0.280
|
Granted
|
24,810,455
|
1.387
|
23,109,685
|
1.640
|
Exercised or vested
|
(20,446,367)
|
0.808
|
(30,102,266)
|
0.102
|
Forfeited
|
(3,792,278)
|
1.002
|
(2,588,486)
|
1.381
|
Outstanding at
the end of the year
|
86,263,963
|
0.842
|
85,692,153
|
0.712
|
Vested at the
end of the year
|
43,669,961
|
0.339
|
41,720,539
|
0.221
|
The weighted average exercise price relates to
options only.
The price payable by participants on exercise or
vesting of option awards outstanding at the end of the year was in
the range US$0.01 to US$1.04 (2022: US$0.01 to US$1.13).
The weighted-average market price of the
Company's ordinary shares on the dates that options and RSUs vested
during 2023 was US$1.45 (2022: US$1.86).
During 2023, the total share-based compensation
expense recognised by the Group was US$40,691,000 (2022:
US$15,695,000). The primary reason for this increase is due to the
two large acquisitions completing in the final four months of 2022
and headcount more than doubling, with every employee being granted
RSUs. In 2023 there was also a prospective change in accounting
method for the RSU charge, in that the charge is based on monthly
graded vesting, not annual graded vesting.
28
Commitments
Software licence
commitments
We have entered into a number of multi-year
Software-as-a-Service (SaaS) arrangements that give us access to
the supplier's application software, principally in relation to EDA
software that we use in developing chip designs. We account for
such arrangements as service contracts.
Future minimum payments under these arrangements
were as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Payable:
|
|
|
Within one year
|
32,602
|
26,065
|
Between one and two years
|
11,132
|
26,792
|
Between two and five years
|
1,369
|
158
|
After more than five years
|
-
|
-
|
Total
|
45,103
|
53,015
|
Capital commitments
The shareholders' agreement governing the
WiseWave joint venture stipulates that the Group shall invest up to
US$170,000,000 in WiseWave. As at 31 December 2023 the Group has
invested US$46,150,000 (2022: US$31,420,000). The shareholders'
agreement includes several matters that are classified as
shareholder reserved matters, including any requirement for a
capital contribution. Such shareholder reserved matters require the
prior written approval of Alphawave or at least one of the
directors nominated by Alphawave to be passed. As any additional
capital contribution requires the prior written approval of
Alphawave, the Group's participation in future financing rounds is
discretionary and therefore the Group has no capital commitments in
relation to WiseWave.
WiseWave does not currently anticipate requiring
the maximum amount stated in the shareholders' agreement and is
likely to undertake an external financing round in the medium term.
If such external financing round were to occur, the Group's
interest in WiseWave would be diluted.
29 Related
party transactions
Key
management personnel
As defined by IAS 24 Related Party Disclosures,
the Group's key management personnel are the Directors of the
Company, the SVP, Engineering, the SVP, Operations and the Chief
Financial Officer.
Expenses recognised in relation to the
compensation of the Group's key management personnel were as
follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Short-term employee benefits
|
5,898
|
5,962
|
Post-employment benefits
|
481
|
59
|
Termination benefits
|
25
|
-
|
Share-based payments
|
4,774
|
2,208
|
|
11,178
|
8,229
|
Post-employment benefits comprise employer
contributions payable to defined contribution pension
plans.
Termination benefits comprise contractual
payments in lieu of notice payable to the former Chief Financial
Officer over the twelve-month period ending in May 2024.
Other related party
transactions
During the year, Group companies entered into
the following transactions with related parties who are not members
of the Group.
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Transactions
|
|
|
Revenue from companies on which a Director is
the chairman of the board1
|
429
|
3,549
|
Revenue from VeriSilicon
|
-
|
3,270
|
Revenue from WiseWave, a joint venture, where
there is common directorship
|
66,879
|
58,207
|
Operating expenses from a company on which a
Director is a director
|
(133)
|
-
|
Costs capitalised as intangible assets from a
company on which a Director is a director
|
(1,000)
|
(1,200)
|
|
66,175
|
63,826
|
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Balances
|
|
|
Accounts receivable from a company on which a
Director is the chairman of the board1
|
1,650
|
350
|
Accounts receivable from VeriSilicon
|
-
|
669
|
Accounts receivable from WiseWave, a joint
venture, where there is common directorship
|
6,364
|
3,360
|
Contract asset from companies on which a
Director is the chairman of the board1
|
2,567
|
6,750
|
Contract asset from WiseWave, a joint venture,
where there is common directorship
|
40,785
|
20,217
|
Accrued liabilities with a company on which a
Director is a director
|
(600)
|
(600)
|
|
50,766
|
30,746
|
Contract liabilities from a company on which a
Director is the chairman of the board
|
-
|
686
|
Prepaid expenses with a company in which a
Director is a director
|
(67)
|
-
|
|
(67)
|
686
|
Companies on which a Director is the chairman
of the board are FLC Technology Group and DreamBig Semiconductor
Inc. As John Lofton Holt ceased to be chairman of the board for
Achronix Semiconductor Corporation on 8 July 2021, any transactions
with Achronix Semiconductor Corporation have been excluded for 2023
but they are still included in the 2022 comparatives.
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. Please note this is only relevant
for the 2022 comparative figures as there are no 2023 VeriSilicon
figures. This is due to the VARVA agreement signed at the end of
2021 meaning all VeriSilicon revenue and associated balances fall
under WiseWave.
30 Business
combinations
Acquisition of Precise-ITC,
Inc.
Year ended 31
December 2022
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,
brought a team of talented engineers and additional strategic IP to
our portfolio. We had been working with Precise since 2019 and our
combined IP solutions were already integrated in silicon products
for several of our customers. Now, working as one team, we 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
was 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
recognised a corresponding liability within trade and other
payables.
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 was 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.
From the acquisition date to 31 December 2022,
Precise contributed revenue of US$2,251,000 and net income of
US$2,747,000 to the Group's results.
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 of US$5,000,000 became payable to the vendors. As at
31 December 2022, we therefore increased the related
liability to US$5,000,000 and recognised a corresponding
expense of US$4,260,000 in profit or loss (within other operating
expenses).
Year ended 31
December 2023
In May 2023, we paid US$5,000,000 to the vendors
in settlement of the contingent consideration, of which US$740,000
(its fair value on the acquisition date) was included in cash flows
from investing activities and the balance of US$4,260,000 was
included in cash flows from operating activities.
Acquisition of
OpenFive
Year ended 31
December 2022
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 brought 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.
It was envisaged in the Stock and Asset Purchase
Agreement that Alphawave may make an election under section 338 of
the US Internal Revenue Code of 1986 to treat the purchase of
OpenFive as an asset acquisition for US federal income tax
purposes. If such an election is made, the tax base of the assets
acquired would be 'stepped-up' to their fair values on the
acquisition date, enabling the purchaser to claim higher income tax
deductions for those assets. On the other hand, there is usually an
increase in the income tax payable by the vendor and the Stock and
Asset Purchase Agreement required Alphawave to compensate the
vendor for the additional US income tax expense that it may incur
if a section 338 election were made.
At the time the Directors approved the Group's
2022 accounts, we had made a section 338 election but were awaiting
the final calculation of its financial effect and any amount
payable to the vendor. We therefore took no account of the section
338 election in determining the purchase consideration and
OpenFive's deferred tax assets and liabilities in the purchase
price allocation that were reflected in the Group's 2022
accounts.
Consequently, the purchase price allocation was
provisional in respect of any adjustments that may arise from the
finalisation of OpenFive's cash, indebtedness and working capital
on completion and the finalisation of the financial effect of the
section 338 election. On that basis, we 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.
From the acquisition date to 31 December 2022,
OpenFive contributed revenue of US$70,827,000 and a net loss of
US$11,717,000 to the Group's results. If we had acquired OpenFive
on 1 January 2022, we estimate that the Group's revenue for 2022
would have been US$75,847,000 higher but its net loss for 2022
would have been US$13,554,000 greater.
Year ended 31
December 2023
We finalised the financial effect of the section
338 election in August 2023. As a result, we retrospectively
adjusted the purchase price allocation as follows:
·
to derecognise deferred tax liabilities of US$15,860,000 that
were initially recognised in respect of identifiable intangible
assets that became deductible for US federal income tax purposes as
a result of the Section 338 election; and
·
to increase the purchase consideration to reflect the tax
adjustment amount of US$5,610,000 payable to compensate the vendor
for the additional income tax payable as a consequence of the
section 338 election.
We paid the tax adjustment amount to SiFive Inc.
in October 2023.
As a result of these adjustments, the goodwill
recognised on the acquisition was reduced by US$10,250,000. We have
not restated the Group's income tax expense for 2022 to reflect the
retrospective application of the 'stepped up' tax base of the
assets acquired because the effect was immaterial.
A binding arbitration decision was reached in
December 2023 regarding OpenFive's cash, indebtedness and working
capital on completion and the vendor paid the resulting purchase
price adjustment of US$12,437,000 to Alphawave in January 2024. At
the end of August 2023, (i.e. at the end of the measurement period
allowed by IFRS 3), it was unclear what the outcome of the dispute
proceedings would be.
New information was obtained about facts and
circumstances that existed at the acquisition date during the
arbitration process and within the measurement period and therefore
the provisional amounts recognised at the acquisition date have
been adjusted accordingly. With the arbitration process concluding
shortly after the end of the measurement period, management
determined that the best estimate of the outcome as at the end of
the measurement period was that the consideration would be
retrospectively reduced by US$12,437,000.
In the restated 2022 balance sheet, we have
therefore reduced goodwill by US$12,437,000 and recognised a
receivable of US$12,437,000.
Acquisition of Banias
Labs
Year ended 31
December 2022
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
brought 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 in cash on completion
including 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 funded the acquisition from existing cash
balances and the proceeds of the 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, that we obtained in
October 2022.
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 consideration. We are recognising the
balance of US$22,209,000 as an employee compensation expense over
the remaining vesting periods of the deferred cash rights which
extend to August 2026. The amount recognised as an expense, shown
as 'Compensation element of Banias Labs deferred cash rights' in
note 6, in 2023 was US$8,352,000 and in 2022 was
US$1,702,000.
At the time the Directors approved the Group's
2022 accounts, we had completed the purchase price allocation,
except for making any adjustments arising from the finalisation of
Banias Labs' cash, indebtedness and working capital on completion.
On that basis, we 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 under
development, Banias Labs does not yet generate any revenue. From
the acquisition date to 31 December 2022, Banias Labs contributed a
net loss of US$481,000 to the Group's results. If we had acquired
Banias Labs on 1 January 2022, we estimate that the Group's net
loss for 2022 would have been US$12,388,000 greater.
Year ended 31
December 2023
We have not yet agreed Banias Labs' cash,
indebtedness and working capital on completion with the vendors,
but do not expect there to be any material adjustments. Since the
measurement period allowed for finalising the purchase price
allocation expired in October 2023, any future adjustments will be
recognised in profit or loss.
Assets acquired and liabilities
assumed
We have finalised the allocation of the purchase
consideration to the identifiable assets and liabilities of the
businesses acquired at their respective acquisition dates and
goodwill as follows:
|
Precise-ITC
|
OpenFive
|
Banias
Labs
|
Total
|
|
US$'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
|
38,451
|
1,256
|
39,976
|
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
|
7,800
|
62,373
|
83,900
|
154,073
|
Property and equipment
|
52
|
813
|
1,702
|
2,567
|
Other assets
|
-
|
1,667
|
1,119
|
2,786
|
Total assets
acquired
|
8,924
|
132,478
|
97,108
|
238,510
|
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)
|
-
|
(13,613)
|
(15,234)
|
Other liabilities
|
-
|
(1,538)
|
(5,261)
|
(6,799)
|
Total
liabilities
|
(2,811)
|
(82,703)
|
(20,947)
|
(106,461)
|
Net
identifiable assets acquired
|
6,113
|
49,775
|
76,161
|
132,049
|
Goodwill arising on acquisition
|
3,097
|
159,471
|
146,585
|
309,153
|
Consideration
|
9,210
|
209,246
|
222,746
|
441,202
|
Purchase consideration was as
follows:
|
|
|
|
|
Cash paid on completion
|
8,470
|
203,636
|
222,746
|
434,852
|
Purchase price adjustment
|
-
|
5,610
|
-
|
5,610
|
Contingent consideration
|
740
|
-
|
-
|
740
|
Consideration
|
9,210
|
209,246
|
222,746
|
441,202
|
We engaged qualified external experts to support
the identification and measurement of the identifiable assets
acquired and liabilities assumed. Identifiable intangible assets
comprised developed technology/IP, customer relationships and
third-party IP licences. We determined the fair values of the
acquired technology/IP intangible assets using the multi-period
excess earnings method (MEEM), the fair value of the customer
relationships using the MEEM and the fair value of the third-party
IP licences 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 expected all of the contractual cash flows from trade
and other receivables to be collected.
As a consequence of our having made the section
338 election, goodwill recognised on the acquisition of OpenFive is
deductible for tax purposes. Otherwise, none of the goodwill
recognised on business combinations completed during 2022
is deductible for tax purposes.
During 2023, we incurred acquisition-related
costs of US$831,000 (2022: US$14,415,000) (included in other
operating expenses).
Cash
flows in relation to business combinations
During the years ended 31 December 2023 and
2022, the cash outflow on the purchase of businesses included in
cash flows from investing activities was as follows:
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Cash paid on completion
|
-
|
434,852
|
Purchase price adjustment
|
5,610
|
-
|
Contingent consideration
|
740
|
-
|
Consideration
paid
|
6,350
|
434,852
|
Cash and cash equivalents acquired
|
-
|
(24,437)
|
Cash outflow on
purchase of businesses, net of cash acquired
|
6,350
|
410,415
|
Contingent consideration of US$5,000,000 paid in
2023 in relation to the acquisition of Precise-ITC was higher than
our estimate at the acquisition date and the excess of US$4,260,000
is therefore included within cash flows from operating
activities.
31 Events after
the reporting period
There are no events after the reporting period
to report.
Alternative performance measures
Introduction
Management uses a number of measures to assess
the Group's financial performance. We consider certain of these
measures to be particularly important and identify them as 'key
performance indicators' (KPIs). We have identified the following
financial measures as KPIs: revenue; bookings; backlog (excluding
royalties); adjusted EBITDA; and cash generated from
operations.
Certain of these measures are non-IFRS measures
because they exclude amounts that are included in, or include
amounts that are excluded from, the most-directly comparable
measure calculated and presented in accordance with IFRS or are
calculated using financial measures that are not calculated in
accordance with IFRS. We do not regard non-IFRS measures as a
substitute for, or superior to, the equivalent IFRS measures.
Non-IFRS measures presented by Alphawave may not be directly
comparable with similarly titled measures presented by other
companies.
Bookings and
backlog
Management monitors bookings and backlog as
indicators of future revenue from contracts with
customers.
Bookings
Bookings is a non‑IFRS measure and represents legally binding and
largely non-cancellable commitments by customers. Bookings comprise
licence fees, non-recurring engineering support, orders for silicon
products, financing components and estimated future royalties
(based on contractually committed royalty prepayments or on volume
estimates provided by customers).
Bookings are recorded at the point the contract
has been signed by both Alphawave and the customer. These are
released to the market each quarter within our quarterly trading
update. Infrequently, customers request to cancel bookings. At the
time of cancellation, these are recorded as debookings after taking
into account any pertinent cancellation charges.
Bookings during the year were as
follows:
|
Year ended 31
December
|
|
|
Restated1
|
|
2023
|
2022
|
|
US$m
|
US$m
|
Preliminary
bookings (including royalties)
|
364.4
|
247.6
|
Adjustment
|
19.5
|
(19.5)
|
Bookings1
|
383.9
|
228.1
|
Royalties
|
-
|
(15.1)
|
Bookings
(excluding royalties)
|
383.9
|
213.0
|
2022 bookings exclude a contract of US$19.5m
that was signed by the acquired OpenFive business, but not
considered a booking until 2023 when project viability was
established.
Backlog
Backlog is a non-IFRS measure that represents
cumulative bookings (excluding royalties) that have not yet been
recognised as revenue and which we expect to be recognised in
future periods.
Backlog at the end of the year is calculated
based on our backlog as at the beginning of the year, plus new
bookings during the year and backlog acquired in business
combinations, less revenue recognised during the year.
Movements on backlog during the year were as
follows:
|
Year ended 31
December
|
|
|
Restated1
|
|
2023
|
2022
|
|
US$m
|
US$m
|
Backlog at the beginning of the year
|
379.7
|
183.8
|
Add: Bookings during the year (excluding
royalties)
|
383.9
|
213.0
|
Add: Backlog acquired in business
combinations
|
-
|
168.3
|
Less: Net adjustments/debookings during the year
(excluding royalties)
|
(87.3)
|
-
|
Less: Revenue recognised during the year
(excluding royalties)
|
(321.4)
|
(185.4)
|
Backlog at the
end of the year
|
354.9
|
379.7
|
2022 opening backlog figure restated to include
a WiseWave booking of US$15.2m previously omitted.
Our closing backlog at the end of 2023 is
US$354.9m (2022: US$379.7m) and includes US$87.3m of net
adjustments/debookings. Nearly half of this balance includes
debookings related to the acquired backlog from
OpenFive.
EBITDA
Earnings before interest, taxation, depreciation
and amortisation (EBITDA) is a non-IFRS measure that we consider is
useful to investors and other users of our financial information in
evaluating the sensitivity of the Group's trading performance to
changes in variable operating expenses.
Joint venture profit or
loss
We also exclude the costs of our joint venture
in WiseWave from EBITDA because we consider that, as a start-up,
they hinder the comparison of the Group's trading performance from
one period to another or with other businesses.
EBITDA may be reconciled to net income/(loss)
for the period determined in accordance with IFRS as
follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Net loss
|
(51,002)
|
(1,086)
|
Add/(deduct):
|
|
|
Finance income
|
(3,448)
|
(1,684)
|
Finance expense
|
8,836
|
3,588
|
Loss from joint venture
|
14,730
|
18,481
|
Income tax expense
|
11,532
|
18,328
|
Depreciation of property and equipment -
owned
|
11,212
|
2,472
|
Depreciation of property and equipment -
leased
|
4,612
|
3,036
|
Amortisation of intangible assets
|
13,294
|
6,159
|
EBITDA
|
9,766
|
49,294
|
Adjusted
measures of profitability
We report adjusted measures of profitability
because we believe that they provide both management and investors
with useful additional information about the financial performance
of our business. Adjusted measures of profitability are non-IFRS
measures that represent the equivalent IFRS measures adjusted for
specific items that we consider hinder comparison of
the Group's financial performance from one period to another
or with other businesses.
Adjusted measures of profitability exclude items
that can have a significant effect on profit or loss. We compensate
for this limitation by monitoring separately the items that are
excluded from the equivalent IFRS measures in calculating the
adjusted measures.
We outline below the specific items of income
and expenses that are recognised in profit or loss in accordance
with IFRS but are excluded from the Group's adjusted
results.
Business combinations
We exclude those effects of applying the
acquisition method of accounting under IFRS that we consider are
not indicative of the Group's trading performance, including the
accounting for transaction costs; the recognition of certain
elements of the purchase price as compensation expense; and the
recognition of remeasurements of contingent consideration in profit
or loss.
During the periods under review, we excluded
from our adjusted results the following items arising from the
accounting for business combinations:
·
acquisition-related costs;
·
the element of the value of the deferred cash rights granted
to employees of Banias Labs to replace the unvested employee share
options at the acquisition date that is accounted for as
compensation expense rather than as consideration;
·
the remeasurement of the contingent consideration payable for
Precise-ITC; and
·
the purchase price adjustment receivable from the vendor of
Open Silicon that was recognised as other operating income rather
than as an adjustment to the purchase price because it was agreed
after the end of the measurement period.
We also exclude from our adjusted measures the
amortisation of identifiable intangible assets acquired in business
combinations in order that the performance of our business may be
compared more fairly with that of businesses that have developed on
an organic basis.
Integration
costs
We exclude the costs of integrating acquired
businesses because we consider that they hinder the comparison of
the Group's trading performance from one period to another or with
other businesses.
Share-based payments and related
expenses
We exclude the compensation expense recognised
in relation to options and RSUs granted under the Company's
share-based payment plans because the awards are equity-settled and
their effect on shareholders' returns is already reflected in
diluted earnings per share measures. We additionally exclude the
expense for payroll taxes payable on the exercise or vesting of the
awards because the expense fluctuates according to the Company's
share price at the exercise or vesting date and the effect on
profit or loss is therefore not necessarily indicative of the
Group's trading performance.
Currency translation
differences
We exclude gains and losses that arise at entity
level on the translation of foreign currency-denominated net cash
and borrowings into the entity's functional currency. Such gains
and losses can be significant and are not representative of the
Group's trading performance.
Income tax effect of
adjustments
Where relevant, we calculate the income tax
effect of adjustments by considering the specific tax treatment of
each item and by applying the relevant statutory tax rate to those
items that are taxable or deductible for tax purposes.
Adjusted EBITDA
Adjusted EBITDA may be reconciled to EBITDA as
follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
EBITDA
|
9,766
|
49,294
|
Add/(deduct):
|
|
|
Acquisition-related costs
|
831
|
12,713
|
Compensation element of Banias Labs deferred
cash rights
|
8,352
|
1,703
|
Remeasurement of contingent consideration
payable for Precise-ITC
|
-
|
4,260
|
Share-based compensation expense
|
40,691
|
15,695
|
Currency translation (loss)/gain
|
2,983
|
(36,838)
|
Adjusted
EBITDA
|
62,623
|
46,827
|
Adjusted earnings per
share
We monitor basic and diluted earnings per share
(EPS) on an IFRS basis and on an adjusted basis. We consider that
adjusted EPS measures are useful to investors in assessing our
ability to generate earnings and provide a basis for assessing the
value of the Company's shares (for example, by way of price
earnings multiples).
Adjusted net income/(loss) for calculating
adjusted EPS measures may be reconciled to net income/(loss)
determined in accordance with IFRS as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Net loss
|
(51,002)
|
(1,086)
|
Add/(deduct):
|
|
|
Acquisition-related costs
|
831
|
12,713
|
Compensation element of Banias Labs deferred
cash rights
|
8,352
|
1,703
|
Remeasurement of contingent consideration
payable for Precise-ITC
|
-
|
4,260
|
Amortisation of acquired intangible
assets
|
12,657
|
5,519
|
Share-based compensation expense
|
40,691
|
15,695
|
Currency translation (loss)/gain
|
2,983
|
(36,838)
|
Tax effect of above adjustments
|
(2,623)
|
4,708
|
Adjusted net
income
|
11,889
|
6,674
|
Adjusted basic and diluted earnings per share
were as follows:
|
Year ended 31
December
|
|
2023
|
2022
|
|
US$ cents
|
US$ cents
|
Adjusted basic earnings per share
|
1.69
|
0.98
|
Adjusted diluted earnings per share
|
1.69
|
0.98
|
Adjusted basic and diluted earnings per share
have been calculated by taking the adjusted net income/(loss) for
the year and dividing it by the weighted average number of common
shares that are used in calculating the equivalent measures under
IFRS as presented in note 27 to the consolidated financial
statements.
Company balance sheet
|
|
As at 31
December
|
|
|
2023
|
2022
|
|
Note
|
US$'000
|
US$'000
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash and cash equivalents
|
5
|
16,911
|
125,729
|
Amounts owed by Group undertakings
|
6
|
21,404
|
14,769
|
Income tax receivables
|
|
2,417
|
364
|
Other receivables
|
7
|
11,888
|
14,194
|
Total current
assets
|
|
52,620
|
155,056
|
Non-current
assets
|
|
|
|
Investments in subsidiaries
|
8
|
346,163
|
280,373
|
Other investments
|
|
1,019
|
-
|
Amounts owed by Group undertakings
|
6
|
366,304
|
260,011
|
Other receivables
|
7
|
6,392
|
17,091
|
Total
non-current assets
|
|
719,878
|
557,475
|
Total
assets
|
|
772,498
|
712,531
|
Liabilities and
equity
|
|
|
|
Current
liabilities
|
|
|
|
Trade and other payables
|
9
|
8,940
|
12,400
|
Amounts owed to Group undertakings
|
|
-
|
-
|
Income tax payable
|
|
-
|
145
|
Loans and borrowings
|
10
|
5,625
|
5,000
|
Total current
liabilities
|
|
14,565
|
17,545
|
Non-current
liabilities
|
|
|
|
Trade and other payables
|
9
|
1,775
|
4,423
|
Loans and borrowings
|
10
|
213,125
|
203,750
|
Total
non-current liabilities
|
|
214,900
|
208,173
|
Total
liabilities
|
|
229,465
|
225,718
|
Share capital
|
11
|
10,011
|
9,751
|
Share premium account
|
11
|
1,638
|
775
|
Merger reserve
|
11
|
(777,751)
|
(777,751)
|
Share-based payment reserve
|
11
|
41,595
|
17,909
|
Currency translation reserve
|
11
|
(52,087)
|
(79,706)
|
Retained earnings
|
|
1,319,627
|
1,315,835
|
Total
equity
|
|
543,033
|
486,813
|
Total
liabilities and equity
|
|
772,498
|
712,531
|
As permitted by section 408 of the Companies Act
2006, the Company's income statement is not presented in these
financial statements. The Company's loss for the financial year was
US$13,213,000 (2022: profit of US$18,407,000).
The financial statements on pages 79 to 80 were
approved and authorised for issue by the Board of Directors on 23
April 2024 and were signed on its behalf by:
Tony
Pialis
Director
Company registered number: 13073661
The notes on pages 80 to 85 form part of these
financial statements.
Company statement of changes in
equity
|
|
Ordinary
|
Share
|
|
Share-based
|
Currency
|
|
|
|
|
share
|
premium
|
Merger
|
payment
|
translation
|
Retained
|
Total
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
earnings
|
equity
|
|
Note
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
As at 1 January 2022
|
|
9,399
|
-
|
(777,751)
|
4,497
|
(23,486)
|
1,295,391
|
508,050
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
-
|
18,407
|
18,407
|
Other comprehensive expense
|
|
-
|
-
|
-
|
-
|
(56,220)
|
-
|
(56,220)
|
Total comprehensive income for the
year
|
|
-
|
-
|
-
|
-
|
(56,220)
|
18,407
|
(37,813)
|
Settlement of share awards:
|
|
|
|
|
|
|
|
|
- Issue of ordinary shares
|
11
|
106
|
775
|
-
|
-
|
-
|
-
|
881
|
- Effect of proceeds below nominal
value
|
|
246
|
-
|
-
|
(246)
|
-
|
-
|
-
|
- Transfer of cumulative compensation expense
on settled awards
|
|
-
|
-
|
-
|
(2,037)
|
-
|
2,037
|
-
|
Share-based compensation recognised in the
year
|
12
|
-
|
-
|
-
|
15,695
|
-
|
-
|
15,695
|
Other changes in equity
|
|
352
|
775
|
-
|
13,412
|
-
|
2,037
|
16,576
|
As at 31 December 2022
|
|
9,751
|
775
|
(777,751)
|
17,909
|
(79,706)
|
1,315,835
|
486,813
|
Loss for the year
|
|
-
|
-
|
-
|
-
|
-
|
(13,213)
|
(13,213)
|
Other comprehensive income
|
|
-
|
-
|
-
|
-
|
27,619
|
-
|
27,619
|
Total comprehensive income for the
year
|
|
-
|
-
|
-
|
-
|
27,619
|
(13,213)
|
14,406
|
Settlement of share awards:
|
|
|
|
|
|
|
|
|
- Issue of ordinary shares
|
11
|
260
|
863
|
-
|
-
|
-
|
-
|
1,123
|
- Effect of proceeds below nominal
value
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- Transfer of cumulative compensation expense
on settled awards
|
|
|
-
|
-
|
-
|
(17,005)
|
-
|
17,005
|
Share-based compensation recognised in the
year
|
12
|
-
|
-
|
-
|
40,691
|
-
|
-
|
40,691
|
Other changes in equity
|
|
260
|
863
|
-
|
23,686
|
-
|
17,005
|
41,814
|
As at 31
December 2023
|
|
10,011
|
1,638
|
(777,751)
|
41,595
|
(52,087)
|
1,319,627
|
543,033
|
The notes on this document pages 80 to 85 form
part of these financial statements.
Notes to the Company financial
statements
For the year
ended 31 December 2023
1
Background
Reporting entity
Alphawave IP Group plc (the 'Company') is a
public limited company that is incorporated and domiciled in
England and Wales and whose shares are listed on the main market of
the London Stock Exchange. The address of the Company's registered
office is 6th Floor, 65 Gresham Street, London, EC2V 7NQ,
United Kingdom.
The Company is the ultimate parent of a group of
companies that develops and markets high-speed connectivity
solutions for application in data centres, data networking, data
storage, artificial intelligence, 5G wireless infrastructure
and autonomous vehicles.
Statement of
compliance
The Company's separate financial statements on
pages 78 to 79 have been prepared in accordance with FRS 101
Reduced Disclosure Framework and those parts of the Companies Act
2006 that are applicable to companies reporting under FRS 101.
Accordingly, the Company's separate financial statements comply
with the recognition and measurement requirements of IFRS as
adopted for use in the United Kingdom as at 31 December 2023
but they exclude certain disclosures that would otherwise be
required under that body of accounting standards.
Basis of preparation
The Company's separate financial statements have
been prepared on a going concern basis and in accordance with the
historical cost convention.
The Company's material accounting policies are
set out in note 2.
Going concern
At the time of approving the financial
statements, the Directors are required to form a judgement as to
whether the Company has adequate resources to continue in
operational existence for the foreseeable future. In forming their
judgement, the Directors consider the Company's current financial
position, the Group's medium-term plan and its budget for the next
financial year, and the principal risks and uncertainties that it
faces.
As at 31 December 2023, the Company had cash and
cash equivalents of US$16.9m and had bank borrowings totalling
US$218.8m, comprised of a Term Loan of US$93.8m and US$125.0m drawn
against a US$125.0m Revolving Credit Facility. Both the Term Loan
and the Revolving Credit Facility are scheduled to mature in the
fourth quarter of 2027.
The Directors based their going concern
assessment on the base case scenario and a severe but plausible
downside scenario over the going concern period as
follows:
·
Group revenue forecasts are materially reduced by 25% and the
interest rate on the Group's debt is 200 basis points higher than
forecast, with a controllable mitigating reduction of 10% of
operating expenditure and a reduction of 50% in laboratory and
prototyping operating and capital expenditure.
Under the base case and the downside scenario,
the analysis demonstrates the Group can continue to maintain
sufficient liquidity headroom with no default on debt
covenants.
Following consideration of the Company's
liquidity position and prospects for the year ahead, the Directors
have a reasonable expectation that the Company has adequate
resources for a period of at least twelve months from the date of
approval of the financial statements and have therefore assessed
that the going concern basis of accounting is appropriate in
preparing the financial statements.
Use
of estimates
The preparation of financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, as well as disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual outcomes could differ from those
estimates and assumptions and affect the Company's results in
future periods.
Presentation currency
The Directors consider that the Company's
functional currency is pound sterling, but present the Company's
financial statements in US dollars for comparability with the
consolidated financial statements. All US dollar amounts are
in thousands (US$'000), except where stated
otherwise.
Disclosure exemptions utilised under FRS
101
In preparing the Company's separate financial
statements, the Directors utilised the following exemptions from
the disclosure requirements of IFRS adopted for use in the United
Kingdom that are available to them under FRS 101:
·
paragraphs 45(b) (number and weighted average exercise prices
of share options) and 46 to 52 (determination of fair value of
options and awards granted and financial effect of share-based
compensation) of IFRS 2 Share-based Payment;
·
the requirements of IFRS 7 Financial Instruments -
Disclosures;
·
paragraphs 91 to 99 (disclosure requirements) of IFRS 13 Fair
Value Measurement;
·
paragraph 38 of IAS 1 Presentation of Financial Statements
with regard to comparative information requirements in respect of
paragraph 79(a)(iv) of IAS 1 (reconciliation of the number of the
Company's shares outstanding at the beginning and end of the
period);
·
paragraphs 10(d) (statement of cash flows), 16 (statement of
compliance with IFRS), 38 (A to D) (comparative information), 111
(statement of cash flows) and 134 to 136 (disclosures about
capital) of IAS 1 Presentation of Financial Statements;
·
IAS 7 Statement of Cash Flows;
·
paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors (discussion of IFRSs issued but not
yet adopted by the Company); and
·
paragraphs 17 and 18A (compensation of key management
personnel) and paragraph 19 (disclosure of transactions with wholly
owned subsidiaries) of IAS 24 Related Party
Transactions.
Accounting standards adopted during the
year
During the year, the Company adopted the
following new and amended accounting standards, none of which had a
material impact on its results or financial position:
·
IFRS 17 Insurance Contracts
·
International Tax Reform - Pillar Two Model Rules (Amendments
to IAS 12)
·
Definition of Accounting Estimates (Amendments to IAS
8)
·
Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2)
·
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12)
An outline of the changes introduced is provided
in note 1 to the consolidated financial statements.
2 Material
accounting policies
Investments in
subsidiaries
A subsidiary is an entity that is controlled,
either directly or indirectly, by the Company. Control exists when
the Company is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those
returns through its power to direct the activities of the entity
that significantly affect its returns. Generally, such power exists
where the Company holds a majority of the voting rights of an
entity. Each of the Company's subsidiaries is wholly
owned.
Investments in subsidiaries represents the
Company's directly owned interests in its subsidiaries, i.e. does
not include any interests that are owned by intermediate holding
companies. Investments in subsidiaries are carried at cost, less
impairment losses, if any.
Foreign currency
translation
Translation
into the Company's functional currency
Transactions denominated in foreign currencies
are recorded in pounds sterling at the exchange rate ruling at the
date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated into pounds
sterling at the exchange rate ruling at the end of the reporting
period. All resulting currency translation differences are
recognised in profit or loss. Non-monetary assets and liabilities
denominated in foreign currencies are not retranslated subsequent
to initial recognition.
Translation
into the Company's presentation currency
Income and expenses presented in profit or loss
or other comprehensive income are translated from pounds sterling
into US dollars at the average exchange rate for the reporting
period. Assets and liabilities are translated from pounds sterling
into US dollars at the exchange rate ruling at the end of the
reporting period. All resulting currency translation differences
are recognised in other comprehensive income and taken to the
currency translation reserve.
Financial instruments
Cash and cash
equivalents
Cash and cash equivalents comprise cash at bank
and on hand and bank deposits with an original maturity of 90 days
or less. Cash and cash equivalents are measured at fair value on
initial recognition, less an allowance for expected credit losses,
and subsequently measured at amortised cost using the effective
interest method.
Amounts owed
by Group undertakings
Amounts owed by Group undertakings are initially
measured at fair value, less an allowance for expected credit
losses, and are subsequently measured at amortised cost using the
effective interest method.
Other
receivables
Other receivables are measured at fair value on
initial recognition, less an allowance for expected credit losses,
and subsequently measured at amortised cost.
Impairment of
financial assets
We recognise an allowance for credit losses in
respect of financial assets that is measured as the amount of
expected credit losses over the next twelve months. If, however,
the risk of default has increased significantly since initial
recognition, we measure the allowance as the amount of
lifetime expected credit losses.
If a financial asset has no realistic prospect
of recovery, it is written off, firstly against any allowance made
and then directly to profit or loss. We consider that a financial
asset is not recoverable if the balance owing is 180 days past due
and information obtained from the counterparty and other external
factors indicate that the counterparty is unlikely to pay its
creditors in full. Any subsequent recoveries are credited to profit
or loss.
Trade and
other payables
Trade payables represent the value of goods and
services purchased from suppliers for which payment has not been
made. Trade and other payables are measured at fair value on
initial recognition and subsequently measured at amortised
cost.
Loans and
borrowings
Bank and other loans are measured at fair value
on initial recognition, less any directly attributable transaction
costs, and are subsequently measured at amortised cost using the
effective interest method.
If a loan or borrowing is subject to covenants
and the Company is in breach of one or more of the covenants at the
end of the reporting period, the carrying amount of the liability
is classified wholly as a current liability, irrespective of any
element that would otherwise be payable more than one year after
the end of the reporting period.
Facility arrangement costs are amortised as a
finance expense over the term of the facility.
Offsetting
financial instruments
Financial assets and financial liabilities are
offset and the net amount presented in the balance sheet where
there is a currently enforceable legal right to offset the
recognised amounts and management intends either to settle on a net
basis or to realise the asset and settle the liability
simultaneously.
Income taxes
Tax on the profit or loss for the year comprises
current and deferred tax. Tax is recognised in the profit and loss
account except to the extent that it relates to items recognised
directly in equity or other comprehensive income, in which case it
is recognised directly in equity or other comprehensive income. The
Company has determined that the global minimum top-up tax - which
is required to pay under Pillar Two legislation - is an income tax
in the scope of IAS 12. The Company has applied a temporary
mandatory relief from deferred tax accounting for the impacts of
the top-up tax and accounts for it as a current tax when it is
incurred.
Deferred tax is tax expected to be payable or
recoverable on temporary differences between the carrying amount of
an asset or liability in the financial statements and its tax base
used in the computation of taxable profit. Deferred tax liabilities
are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available in the future against which they
can be utilised.
Where there is uncertainty concerning the tax
treatment of an item or a group of items, the amount of current and
deferred tax recognised is based on management's expectation of the
likely outcome of the examination of the uncertain tax treatment by
the relevant tax authorities.
Current tax and deferred tax is recognised in
profit or loss unless it relates to an item that is recognised in
the same or a different period outside profit or loss, in which
case the related tax is also recognised outside profit or loss,
either in other comprehensive income or directly in
equity.
Share-based
payments
As described in note 27 to the consolidated
financial statements, the Company operates share-based compensation
plans under which it grants options and RSUs over its ordinary
shares to certain of its own employees and those of its
subsidiaries. Awards granted under the existing plans are
classified as equity-settled awards.
For awards granted to its own employees, the
Company recognises a compensation expense that is based on the fair
value of the awards measured at the grant date using an appropriate
valuation model. For awards granted to the employees of a
subsidiary, the Company recognises the compensation expense
recognised by the subsidiary, less any amounts charged to the
subsidiary, as a capital contribution to the subsidiary. In either
case, the Company recognises a corresponding credit to the
share-based payments reserve within equity.
In the event of the cancellation of an award by
the Company or by the participating employee, the compensation
expense that would have been recognised over the remainder of the
vesting period is recognised immediately in profit or loss or as a
capital contribution to the relevant subsidiary.
3 Directors and
employees
The average number of people employed by the
Company during the year was ten (2022: seven).
4 Auditor's
remuneration
Fees payable to the Company's auditor, KPMG LLP,
are set out in note 8 to the consolidated financial
statements.
5 Cash and cash
equivalents
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Cash at bank and in hand
|
16,911
|
125,729
|
Short-term deposits
|
-
|
-
|
Total
|
16,911
|
125,729
|
6 Amounts owed
by Group undertakings
Current amounts owed by Group undertakings
represent balances arising from normal course trading activities
that are expected to be recovered within a year.
Non-current amounts owed by Group undertakings
represent balances arising from normal course trading activities
and loans to non-trading entities in respect of our acquisition of
OpenFive and equity investment in WiseWave that are not expected to
be recovered within a year.
7 Other
receivables
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
|
|
|
Restricted cash
|
11,611
|
13,922
|
Prepayments
|
277
|
272
|
|
11,888
|
14,194
|
|
|
|
Non-current
|
|
|
Restricted cash
|
6,392
|
17,091
|
|
6,392
|
17,091
|
Restricted cash comprises amounts held by
third-party paying agents in respect of deferred consideration and
future compensation amounts payable to employees of Banias Labs
conditional on their remaining in the Group's employment during the
respective vesting periods, the last of which expires during 2026.
Cash held by the paying agent in relation to amounts that are
forfeited by the employees will be returned to the
Company.
8 Investments
in subsidiaries
Movements in the carrying amount of interests in
subsidiaries owned directly by the Company were as
follows:
|
US$'000
|
As at 1 January 2022
|
22,391
|
Additions
|
240,135
|
Capital contributions - Share-based
payments
|
15,695
|
Deferred cash rights
|
1,702
|
Foreign exchange
|
450
|
As at 31 December 2022
|
280,373
|
Capital contributions - Share-based
payments
|
39,757
|
Deferred cash rights
|
8,352
|
Foreign exchange
|
17,681
|
As at 31
December 2023
|
346,163
|
During 2022, the Company acquired 100% of the
share capital of Solanium Labs Ltd (Banias Labs).
9 Trade and
other payables
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
|
|
|
Trade payables
|
1,888
|
1,302
|
Other payables
|
4,823
|
6,249
|
Accrued expenses
|
2,321
|
4,849
|
Social security and other taxes
|
(92)
|
-
|
|
8,940
|
12,400
|
|
|
|
Non-current
|
|
|
Other payables
|
1,775
|
4,423
|
Other payables include US$4.5m (2022: US$10.5m)
deferred consideration and compensation payable to employees of
Banias Labs.
10 Loans and
borrowings
|
As at 31
December
|
|
2023
|
2022
|
|
US$'000
|
US$'000
|
Current
|
|
|
Term Loan
|
5,625
|
5,000
|
|
|
|
Non-current
|
|
|
Revolving Credit Facility
|
125,000
|
110,000
|
Term Loan
|
88,125
|
93,750
|
|
213,125
|
203,750
|
In October 2022, the Company entered into a
Credit Agreement with a syndicate of banks that provided it with a
US dollar‑denominated Delayed
Draw Term Loan B ('Term Loan') facility of US$100.0m and a
multi-currency Revolving Credit Facility (RCF) of
US$125.0m.
In October 2022, the Company drew the Term Loan
facility in full and US$110.0m from the RCF in connection with the
acquisition of Banias Labs. The Company drew the remaining US$15.0m
of the RCF in May 2023.
Details of the facilities, including the
repayment schedule attaching to the Term Loan and the applicable
financial covenants, are set out in note 22 to the
consolidated financial statements.
11 Share
capital and reserves
Share capital and share premium
account
Details of the Company's share capital are set
out in note 26 to the consolidated financial statements.
Share capital represents the nominal value of
shares in issue.
The share premium account represents the
difference between the nominal value of shares in issue and the
fair value of the consideration received. For 2023 the amount
allocated to the share premium account is US$863,000 (2022:
US$775,000). The share premium account is not distributable
but may be used for certain purposes specified by United Kingdom
law, including to write off expenses on any issue of shares and to
pay up fully paid bonus shares.
Other reserves
Merger
reserve
In May 2021, the Company purchased the entire
issued share capital of Alphawave IP Inc., the Group's former
parent Company, by way of an exchange of shares in a Group
reorganisation that was accounted for as a merger. The merger
reserve represents the excess of the nominal value of the Company's
ordinary shares issued over the carrying amount of Alphawave IP
Inc's net assets at the date of the reorganisation.
Share-based
payment reserve
The share-based payment reserve represents the
cost recognised to date in respect of share-based payment awards
that have not been exercised.
Currency
translation reserve
The currency translation reserve comprises gains
and losses arising on the translation of the Company's results and
financial position from its functional currency to its
presentational currency.
Distributable
profits
Profits available for distribution by the
Company comprise its accumulated realised profits less its
accumulated realised losses, subject to the restriction that a
distribution may not reduce the Company's net assets below the
aggregate of its called up share capital and its undistributable
reserves.
The Directors consider that the Company's loss
as at 31 December 2023 amounted to US$13.2m (2022: US$18.4m
profit).
12 Share-based
compensation
Details of the share-based compensation plans
operated by the Company, together with information about share
options exercised and outstanding, is presented in note 27 to the
consolidated financial statements.
During 2023, the Company recognised an expense
of US$0.9m (2022: US$0.2m) in respect of awards granted to its own
employees.
13 Events after
the reporting period
On 27 February 2024 Alphawave 102022 Limited was
dissolved.
Related
undertakings
Details of the Company's related undertakings as
at 31 December 2023 are as follows:
Name
|
Registered
address
|
Country
|
Subsidiaries
|
|
|
Alphawave IP Inc.
|
70 University Ave, 10th Floor, Toronto, Ontario,
Canada M5J 2M4
|
Canada
|
Alphawave Semi US Corp. (formerly Alphawave IP
Corp.)
|
1730 N 1st St, Suite 650, San Jose, CA,
95112
|
United States (Delaware)
|
Alphawave IP (BVI) Ltd.1,
2
|
Trinity Chambers, PO Box 4301, Road Town,
Tortola
|
British Virgin Islands
|
Alphawave Call. Inc.1, 2
|
70 University Ave, 10th Floor, Toronto, Ontario,
Canada M5J 2M4
|
Canada
|
Alphawave Exchange Inc.
|
70 University Ave, 10th Floor, Toronto, Ontario,
Canada M5J 2M4
|
Canada
|
Alphawave IP Limited1
|
21 Avenida da Praia Grande, No 409, Edificio
China Law, 21 andar, em, Macau
|
China
|
Precise-ITC, Inc.
|
170 University Avenue, 10th Floor, Toronto,
Ontario, M5H 3B3
|
Canada
|
AWIPInsure Limited1
|
1st Floor, Limegrove Centre, Holetown, St.
James
|
Barbados
|
Alphawave Semi International Corp. (formerly
Alphawave Holdings Corp.)1
|
1730 N 1st St, Suite 650, San Jose, CA,
95112
|
United States (Delaware)
|
Alphawave Semi Inc. (formerly Open-Silicon,
Inc.)
|
490 N McCarthy Blvd #220, Milpitas, CA
95035
|
United States (Delaware)
|
Alphawave Semiconductor Corp
|
1730 N 1st St, Suite 650, San Jose, CA,
95112
|
United States (Delaware)
|
Alphawave Semi Holding Corp (formerly
Open-Silicon Holding Corp.)
|
3rd Floor, Les Cascades, Edith Cavell Street,
Port Louis
|
Mauritius
|
Open-Silicon Development
Corp.2
|
490 N McCarthy Blvd #220, Milpitas, CA
95035
|
United States (Delaware)
|
Open-Silicon Engineering,
Inc.2
|
490 N McCarthy Blvd #220, Milpitas, CA
95035
|
United States (Delaware)
|
Open-Silicon International,
Inc.2
|
490 N McCarthy Blvd #220, Milpitas, CA
95035
|
United States (Delaware)
|
Open-Silicon Japan2
|
c/o Akia Tax Consultants, Shoei Kannai Building,
22, Sumiyoshicho 2-chrome, Naka-ku, Yokohama, Kanagawa
|
Japan
|
Alphawave Semi India Pvt Ltd (formerly
Open-Silicon Research Private Ltd)
|
No. 11/1 & 12/1 Maruthi Infotech Centre, 2nd
Floor, B-Block, Indiranagar, Koramangala Intermediate Ring Road,
Bangalore - 560 071.
|
India
|
Alphawave Semi Nanjing Co Ltd (formerly Yuanfang
Silicon Technology (Nanjing) Co. Ltd)
|
Room 101, Building B, No. 300, Zhihui Road,
Qilin Science and Technology Innovation Park, Jiangning District,
Nanjing
|
China
|
Alphawave Semi Asia Co. Ltd
|
Room 702-703, Building 8, Lane 777, Gaoke East
Road, Pudong New Area, Shanghai
|
China
|
Alphawave 102022 Limited
(dissolved)1,2
|
65 Gresham Street, 6th Floor, London, England,
EC2V 7NQ
|
United Kingdom, (England & Wales)
|
Solanium Labs Ltd1
|
24 Hanagar, Hod HaSharon 4527713
|
Israel
|
Joint venture
|
|
|
WiseWave Technology Co.,
LTD1,3
|
Room 105, No. 6, Baohua Road, Hengqin New
District, Zhuhai
|
China
|
All subsidiaries are wholly
owned.
Owned directly by Alphawave IP Group
plc.
Dormant.
Joint venture in which the Group has a 42.5%
ownership interest and voting rights.
Appendix
TCFD Compliance
Table
Disclosure
|
Response
|
Governance - Compliant
|
|
a. Describe the board's oversight of
climate-related risks and opportunities.
|
Page 18, Governance -
page 17
|
b. Describe management's role in assessing and
managing climate-related risks and opportunities.
|
Page 18, Governance -
page 17
|
Strategy - Partially
compliant
|
|
a. Describe the climate-related risks and
opportunities the organisation has identified over the short,
medium and long term.
|
See Risks and
Opportunities tables on pages 19-20
|
b. Describe the impact of climate-related risks
and opportunities on the organisation's business, strategy and
financial planning.
|
Dependency on
natural, social and human capital - page 20
|
Strategy - page 17
|
|
c. Describe the resilience of the organisation's
strategy, taking into consideration different climate-related
scenarios, including a 2ºC or lower scenario.
|
We have not performed
a quantitative risk assessment or climate-related scenario
analysis. In 2024 we will evaluate the additional requirements and
associated costs to assess the resilience of the organisation under
different climate-related scenarios. Following this evaluation we
will make a decision on whether a quantitative risk assessment
should be prioritised and the timing if
appropriate.
|
Risk
Management -Compliant
|
|
a. Describe the organisation's processes for
identifying and assessing climate-related risks.
|
Risk Management -
Page 19
|
b. Describe the organisation's processes for
managing climate-related risks.
|
See Risks and
Opportunities tables on pages 19-20
|
c. Describe how processes for identifying,
assessing and managing climate-related risks are integrated into
the organisation's overall risk management.
|
Risk Management -
Page 19
|
Metrics and Targets -
Compliant
|
|
a. Disclose the metrics used by the organisation
to assess climate-related risks and opportunities in line with its
strategy and risk management process.
|
Metrics and Targets -
Page 18-19
|
b. Disclose Scope 1, Scope 2, and if
appropriate, Scope 3 greenhouse gas (GHG) emissions, and the
related risks.
|
Table - Page
18-19
|
c. Describe the targets used by the organisation
to manage climate-related risks and opportunities and performance
against targets.
|
Metrics and Targets -
Pages 18 and 19
|
Companies Act
climate-related reporting requirements
1. A description of the company's governance
arrangements in relation to assessing and managing climate-related
risks and opportunities;
|
See page 17 -
Governance
|
2. A description of how the company identifies,
assesses and manages climate-related risks and
opportunities;
|
See page 19 - Risk
Management
|
3. A description of how processes for
identifying, assessing and managing climate-related risks are
integrated into the company's overall risk management
process;
|
See page 19 - Risk
Management
|
4. A description of:
i. the principal climate-related risks and
opportunities arising in connection with the company's operations;
and
ii. the time periods by reference to which those
risks and opportunities are assessed;
|
See Risks and
Opportunities tables on pages 18 - 19
|
5. A description of the actual and potential
impacts of the principal climate-related risks and opportunities on
the company's business model and strategy;
|
See page 17,18 -
Strategy
|
6. An analysis of the resilience of the
company's business model and strategy, taking into consideration
different climate-related scenarios;
|
See pages 18,19 -
Metrics and targets
|
7. A description of the targets used by the
company to manage climate-related risks and to realise
climate-related opportunities and of performance against those
targets; and
|
See page 18 - Metrics
and targets
|
8. A description of the key performance
indicators used to assess progress against targets used to manage
climate-related risks and realise climate-related opportunities and
of the calculations on which those key performance indicators
are based.
|
See page 18 - Metrics
and targets
|