REG - Alphawave IP Group - Final Results
23/04/2024 07:00
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RNS Number : 6543L Alphawave IP Group PLC 23 April 2024
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
· EBITDA(1) 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$119m
LONDON, United Kingdom and TORONTO, Ontario, Canada 23 April 2024 - Alphawave
IP Group plc (LSE: AWE, the "Company" or "Alphawave Semi"), a global leader in
high-speed connectivity for the world's technology infrastructure, has
published its results for the year ended 31 December 2023.
Financial Summary and APMs(1) - US$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%
EBITDA(1) 9.8 49.3 (80)%
EBITDA margin 3% 27%
Adjusted EBITDA(1) 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 3.8 23.2 (84)%
China re-sale licences(( 4 ))
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
(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
(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/
(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
Alphawave Semi John Lofton Holt, Executive Chair ir@awavesemi.com (mailto:ir@awavesemi.com)
Jose Cano, Head of Investor Relations +44 (0) 20 7717 5877
Brunswick Group Caroline Daniel alphawave@brunswickgroup.com (mailto:alphawave@brunswickgroup.com)
+44 (0) 20 7404 5959
Gravitate PR Lisette Paras alphawave@gravitatepr.com (mailto:alphawave@gravitatepr.com)
Michael Terry Caraher +1 415 420 8420
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 2022(10): 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 2022(11). 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 2027(1). 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 2025(1). 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
CO(2) 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 management(1) 1 10 11
FY 2022 Female Male Total
Board 4 6 10
Total employees 141 554 695
Senior management(1) 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 CO(2)e
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 601.7 3,452.6
electricity, hotel stays, homeworkers, computing, upstream logistics air and
road, well to tank, commuting, flights, hire car, taxi and grey fleet travel.)
Total gross (Scope 1, 2 and 3) location-based emissions 1,152.1 4,942.8
Intensity ratios
tCO(2)e (gross Scope 1, 2 and 3) per employee 1.78 5.96
tCO(2)e (gross Scope 1, 2 and 3) per US$m revenue(1) nm 15.3
Underlying energy consumption (kWh)
Total global energy consumed 2,618,460 5,685,827
Total UK energy consumed(2) n/a n/a
UK-based emissions nm nm
UK-based energy consumption nm nm
1. tCO(2)e (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 tCO(2)e (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 are actively managing e-waste, reducing unnecessary business travel and,
when necessary, relocating our offices into energy-efficient buildings.
We continue to adapt and comply with regulatory standards, including evolving
product standards.
As a fabless business with low capital intensity we do not have a significant
amount of assets at risk of impairment or early retirement as a result of
changes in environmental legislation.
Technology | low risk, medium to long term Energy source | low risk, medium to long term
Alphawave Semi is at the forefront of wired connectivity technology. Energy from renewables is not available in all our locations, but where
possible, we try to improve the mix of purchased energy towards renewables.
Our leading-edge technology advances push the boundaries of wired connectivity
capabilities, enabling data to travel faster, more reliably and using lower All our premises are leased. Our offices in Canada (Toronto and Ottawa) and
power. the US (Milpitas and San Jose) are based in modern, smart buildings with
energy-saving systems and modern HVAC systems.
Our focus on connectivity and R&D investment seeks to ensure we remain
ahead of our competitors. 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. 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
Our business has a low risk exposure from scarcity of 'rare Earth materials'. data-intensive applications.
Higher energy costs could potentially impact the direct costs of our Our technology contributes in different ways to reduce the power consumption
manufacturing partners and result in higher cost of goods sold. Our foundry of data centres.
partners are the leading manufacturing companies in the industry and
continuously invest in the adoption of next generation manufacturing
technologies.
Reputation | low risk, long term Markets | medium risk, long term
Although our direct carbon footprint is relatively small compared to other We work with the leading companies in the semiconductor industry, leading
business activities, we seek to reduce our carbon footprint and undertake telecommunications business, technology companies as well as hyperscalers.
appropriate efforts to not fall short of best practice amongst fabless These companies have a strong focus on reducing their carbon footprint and are
semiconductor companies in our sector and our largest customers. investing in new technologies.
We are planning to use our 2023 carbon emissions baseline to set a clear level Our connectivity technology aims to address the hardest‑to‑solve problems
from which we can define specific environmental goals. 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 All our employees can work remotely and the majority of our offices are
any specific material risks as a result of the located in modern offices in city centres.
physical impacts of climate change, such as property damage due to extreme
weather events (i.e. changes in temperature, wind patterns or
water‑related). 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
We have not yet assessed current and future climate risks, acute and chronic, recommendations of the TCFD and have initiatives in place to manage
in our most critical locations. In 2024 we are intending to evaluate these risks.
additional requirements and costs involved in such assessment.
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 It could potentially become more difficult or expensive to insure certain
result in increased costs in our supply chain due to higher compliance, raw locations.
materials or energy costs to our suppliers.
Dependency on natural, human and social capital
Climate change would not create any new direct dependencies on natural, human
or social capital.
Our 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 CO(2)‑eq
in 2020, equivalent to 0.9% of energy‑related GHG emissions or 0.6% of total
GHG emissions(1). Connectivity accounts for 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-conditioning(2).
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 PCIe7(1), CXL(2) and UCIe(3) (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.
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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.
EBITDA(1) 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 Restated(1)
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$170m in
total into WiseWave, although our expectation is that any future investment
will continue to be limited. We are seeking to exit our equity investment in
WiseWave in 2024 but we will time this exit based on market conditions to
maximise return to shareholders.
During the second quarter of 2023, the Group's Fixed Charges Coverage Ratio
(FCCR), one of the covenants in its borrowing arrangements, was below the
minimum allowed ratio of 1.25x, principally due to a higher working capital
requirement as a result of a significant reduction in contract liabilities, a
higher proportion of lower margin silicon revenue at the beginning of the year
and increased investment in research and development activities, as
anticipated, as the Group invests in its own products business. On 22
September 2023, we established an amendment to the Credit Agreement with the
lenders which suspended the FCCR ratio for the period from the quarter ended
30 June 2023 to the quarter ending 30 June 2024, after which it is set at
1.1x until the quarter ending 30 September 2025 when it reverts to 1.25x. As
we continue to invest in growth and scale, we continue to closely monitor our
cash flow to ensure we maintain full compliance with our debt covenants.
The Company's capital allocation policy remains focused on investment in own
product development and prototyping, critical hires and expertise to support
growth opportunities, and management of our debt position in a changing
interest rate environment. We do not intend to pay dividends or make
significant acquisitions in the short or medium term. We continue to review
our capital allocation framework and available sources of capital to support
our long-term growth strategy.
Finally, as further detailed on the Directors have adopted the going concern
basis of accounting.
Summary cash flow
Restated(1)
US$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 2022(1
US$'000 ) US$'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
Restated(1) 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
Restated(1)
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$16.8m).
Contract assets and liabilities
Below is a reconciliation of the movement in contract assets during the
period:
Year ended 31 December
Restated(1)
2023 2022
US$'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 capitalised(1) (46,226) (3,455)
Total 78,216 69,358
The amount of US$46.2m capitalised in 2023 includes US$4.4m that has been
capitalised in property and equipment.
6 Other operating (expense)/income
Other operating (expense)/income items were as follows:
Year ended 31 December
2023 2022(1)
US$'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$'000
Finance income
Interest income from contracts with customers containing significant financing 275 235
components
Interest on bank deposits 3,173 1,449
3,448 1,684
Finance expense
Bank charges (65) -
Lease interest (1,581) (391)
Term loan interest (16,489) (3,134)
Term loan interest capitalised to the balance sheet 9,534
NPV interest - (27)
Interest under IAS 19 (61) -
IIA interest (174) (36)
(8,836) (3,588)
Net finance expense (5,388) (1,904)
10 Income taxes
Income tax recognised in profit or loss
The components of the Group's income tax expense for the year were as follows:
Year ended 31 December
2023 2022
US$'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$'000
(Loss)/profit before tax (39,470) 17,242
(Loss)/profit before tax at the UK corporation tax rate of 23.52% (2022: 19%) (9,283) 3,275
Effects of:
Share-based compensation 7,267 3,141
Expenses not deductible for tax purposes 3,171 1,964
Under/(over) accrual of prior year provision 3,167 (516)
Different tax rates applied in overseas jurisdictions 667 3,469
Share of joint venture's loss 3,465 3,511
Movement in unrecognised deferred tax assets. 2,146 3,281
Other tax items 932 203
Income tax expense 11,532 18,328
Factors affecting the income tax expense in future years
A blended UK corporation tax rate of 23.52% is used for 31 December 2023 due
to the change in the UK corporation tax rate to 25% from 1 April 2023, from
the previously enacted 19%, announced at the Budget on 3 March 2021, and
substantively enacted on 24 May 2021. The deferred taxation balances have been
measured using the rates expected to apply in the reporting periods when the
timing differences reverse.
There have been no legislative changes announced in 2023 in relation to
Canadian or US tax rates which will affect the Group.
Deferred tax
The movement on the deferred tax account is as shown below:
Year ended 31 December
Restated(1)
2023 2022
US$'000 US$'000
At the beginning of the year 11,110 422
Purchase of businesses - 15,234
Charge/(credit) to profit or loss 10,881 (278)
(Credit) to OCI (409) -
Transfer of tax credits - (4,350)
Currency translation differences (2) 82
Other (721) -
At the end of the year 20,859 11,110
Restated to reflect the purchase price allocation on the acquisition of
OpenFive (see note 30)
The deferred tax account is made up as follows:
Year ended 31 December
Restated(1)
2023 2022
US$'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 705,550,299 679,849,437
share
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
Restated(1)
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$'000
Revenue 19,826 5,517
Loss from continuing operations (35,930) (37,764)
Included in loss from continuing operations are:
Depreciation and amortisation (20,730) (18,267)
Interest expense (2,171) (2,936)
Other comprehensive income - -
Total comprehensive expense (100%) (35,930) (37,764)
Group share of total comprehensive expense (42.5%) (15,270) (16,050)
Reversal/(recognition) of share of unrealised profits on IP licences to joint 540 (2,431)
venture
Loss from joint venture (14,730) (18,481)
17 Cash and cash equivalents
As at 31 December
2023 2022
US$'000 US$'000
Cash at bank and in hand 101,291 186,231
18 Trade and other receivables
As at 31 December
Restated(1)
2023 2022
US$'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$50.9m) that are largely covered by advance
receipts from customers.
21 Trade and other payables
As at 31 December
Restated(1)
2023 2022
US$'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$'000
Financial assets
Cash and cash equivalents 101,291 101,291
Trade and other receivables 103,498 103,498
Contract assets 65,173 65,173
Total financial assets 269,962 269,962
Financial liabilities
Trade and other payables (71,060) (71,060)
Lease liabilities (16,680) (16,680)
Loans and borrowings (220,375) (220,375)
Total financial liabilities (308,115) (308,115)
Restated as at 31 December 2022(1)
Carrying amount
At fair value
Amortised through Fair
cost profit or loss Total value
US$'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$'000
Cash and cash equivalents 65,443 1,457 34,391 101,291
Trade and other receivables and other assets - - 103,498 103,498
Contract assets - - 65,173 65,173
Total financial assets 65,443 1,457 203,062 269,962
Trade and other payables - - (71,060) (71,060)
Lease liabilities - - (16,680) (16,680)
Loans and borrowings (220,375) - - (220,375)
Total financial liabilities (220,375) - (87,740) (308,115)
Restated as at 31 December 2022(1)
Interest bearing
Non-interest
Floating rate Fixed rate bearing Total
US$'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$'000
Cash and cash equivalents 632 41,957 133 473 2,756 210 55,130 101,291
Trade and other receivables and other assets 20,376 902 596 1,055 6,211 72 74,286 103,498
Contract assets - - - - 66 - 65,107 65,173
Trade and other payables (26,829) (4,969) (2,266) (3,954) (393) (21) (32,628) (71,060)
Lease liabilities (14,949) - (832) (890) (9) - -- (16,680)
Loans and borrowings - - (1,625) - - - (218,750) (220,375)
(20,770) 37,890 (3,994) (3,316) 8,631 261 (56,855) (38,153)
Restated as at 31 December 2022(1)
CAD GBP ILS INR RMB USD Total
US$'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$'000
Trade and other payables 69,285 1,775 - 71,060
Lease liabilities 3,953 7,660 5,067 16,680
Loans and borrowings 5,625 214,750 - 220,375
78,863 224,185 5,067 308,115
Restated as at 31 December 2022(1)
Due within Due between Due >
1 year 1 and 5 years 5 years Total
US$'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$'000
Transactions
Revenue from companies on which a Director is the chairman of the board(1) 429 3,549
Revenue from VeriSilicon - 3,270
Revenue from WiseWave, a joint venture, where there is common directorship 66,879 58,207
Operating expenses from a company on which a Director is a director (133) -
Costs capitalised as intangible assets from a company on which a Director is a (1,000) (1,200)
director
66,175 63,826
Year ended 31 December
2023 2022
US$'000 US$'000
Balances
Accounts receivable from a company on which a Director is the chairman of the 1,650 350
board(1)
Accounts receivable from VeriSilicon - 669
Accounts receivable from WiseWave, a joint venture, where there is common 6,364 3,360
directorship
Contract asset from companies on which a Director is the chairman of the 2,567 6,750
board(1)
Contract asset from WiseWave, a joint venture, where there is common 40,785 20,217
directorship
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 - 686
board
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
Restated(1)
2023 2022
US$m US$m
Preliminary bookings (including royalties) 364.4 247.6
Adjustment 19.5 (19.5)
Bookings(1) 383.9 228.1
Royalties - (15.1)
Bookings (excluding royalties) 383.9 213.0
2022 bookings exclude a contract of US$19.5m that was signed by the acquired
OpenFive business, but not considered a booking until 2023 when project
viability was established.
Backlog
Backlog is a non-IFRS measure that represents cumulative bookings (excluding
royalties) that have not yet been recognised as revenue and which we expect to
be recognised in future periods.
Backlog at the end of the year is calculated based on our backlog as at the
beginning of the year, plus new bookings during the year and backlog acquired
in business combinations, less revenue recognised during the year.
Movements on backlog during the year were as follows:
Year ended 31 December
Restated(1)
2023 2022
US$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 Limited(1) 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 Limited(1) 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 Japan(2) c/o Akia Tax Consultants, Shoei Kannai Building, 22, Sumiyoshicho 2-chrome, Japan
Naka-ku, Yokohama, Kanagawa
Alphawave Semi India Pvt Ltd (formerly Open-Silicon Research Private Ltd) No. 11/1 & 12/1 Maruthi Infotech Centre, 2nd Floor, B-Block, Indiranagar, India
Koramangala Intermediate Ring Road, Bangalore - 560 071.
Alphawave Semi Nanjing Co Ltd (formerly Yuanfang Silicon Technology (Nanjing) Room 101, Building B, No. 300, Zhihui Road, Qilin Science and Technology China
Co. Ltd) Innovation Park, Jiangning District, Nanjing
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 Ltd(1) 24 Hanagar, Hod HaSharon 4527713 Israel
Joint venture
WiseWave Technology Co., LTD(1,3) 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 Page 18, Governance - page 17
and opportunities.
Strategy - Partially compliant
a. Describe the climate-related risks and opportunities the organisation has See Risks and Opportunities tables on pages 19-20
identified over the short, medium and long term.
b. Describe the impact of climate-related risks and opportunities on the Dependency on natural, social and human capital - page 20
organisation's business, strategy and financial planning.
Strategy - page 17
c. Describe the resilience of the organisation's strategy, taking into We have not performed a quantitative risk assessment or climate-related
consideration different climate-related scenarios, including a 2ºC or lower scenario analysis. In 2024 we will evaluate the additional requirements and
scenario. 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 Risk Management - Page 19
climate-related risks.
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 Risk Management - Page 19
climate-related risks are integrated into the organisation's overall risk
management.
Metrics and Targets - Compliant
a. Disclose the metrics used by the organisation to assess climate-related Metrics and Targets - Page 18-19
risks and opportunities in line with its strategy and risk management process.
b. Disclose Scope 1, Scope 2, and if appropriate, Scope 3 greenhouse gas (GHG) Table - Page 18-19
emissions, and the related risks.
c. Describe the targets used by the organisation to manage climate-related Metrics and Targets - Pages 18 and 19
risks and opportunities and performance against targets.
Companies Act climate-related reporting requirements
1. A description of the company's governance arrangements in relation to See page 17 - Governance
assessing and managing climate-related risks and opportunities;
2. A description of how the company identifies, assesses and manages See page 19 - Risk Management
climate-related risks and opportunities;
3. A description of how processes for identifying, assessing and managing See page 19 - Risk Management
climate-related risks are integrated into the company's overall risk
management process;
4. A description of: See Risks and Opportunities tables on pages 18 - 19
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;
5. A description of the actual and potential impacts of the principal See page 17,18 - Strategy
climate-related risks and opportunities on the company's business model and
strategy;
6. An analysis of the resilience of the company's business model and strategy, See pages 18,19 - Metrics and targets
taking into consideration different climate-related scenarios;
7. A description of the targets used by the company to manage climate-related See page 18 - Metrics and targets
risks and to realise climate-related opportunities and of performance against
those targets; and
8. A description of the key performance indicators used to assess progress See page 18 - Metrics and targets
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.
1 For definitions of non-IFRS measures see Alternative Performance Measures
section.
2 FY 2022 has been restated to reflect the finalisation of the purchase
price allocation on the acquisition of OpenFive (see notes 12 and 30).
3 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 and estimated future royalties
(based on contractually committed royalty prepayments or on volume estimates
provided by customers). Licence and NRE bookings in 2023 have been adjusted
for an amount of US$4.9m related to a licence & NRE booking reported in Q1
2023.
4 Both FSA (Flexible Spending Account) drawdowns and China re-sale licences
convert previously announced contractual commitments included within bookings
reported in prior periods to new product design wins which will be recognised
as revenue over time.
5 AI Drives Cloud Player Capex Amid Cautious Overall Spend - Counterpoint
(counterpointresearch.com)
(https://www.counterpointresearch.com/insights/ai-drives-cloud-player-capex/)
6
https://www.gartner.com/en/newsroom/press-releases/11-13-2023-gartner-forecasts-worldwide-public-cloud-end-user-spending-to-reach-679-billion-in-20240
(https://www.gartner.com/en/newsroom/press-releases/11-13-2023-gartner-forecasts-worldwide-public-cloud-end-user-spending-to-reach-679-billion-in-20240)
7 Semico Research Corporation, December 2022, IPNest and LightCounting
8
https://www.design-reuse.com/articles/54720/deploying-chiplets-into-mass-markets.html
(https://www.design-reuse.com/articles/54720/deploying-chiplets-into-mass-markets.html)
9
https://www.delloro.com/news/20-percent-of-ethernet-data-center-switch-ports-will-connect-to-ai-servers-by-2027/
(https://www.delloro.com/news/20-percent-of-ethernet-data-center-switch-ports-will-connect-to-ai-servers-by-2027/)
10 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.For definition of non-IFRS
measures see Alternative Performance Measures section.
11 FY 2023 bookings include an adjustment of US$4.9m decreasing the value of
a licence and NRE booking reported in Q1 2023
12 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).
13 FY 2022 has been restated to reflect the finalisation of the purchase
price allocation on the acquisition of OpenFive (see notes 12 and 30).
14 Restated to reflect the finalisation of the purchase price allocation on
the acquisition of OpenFive (see notes 12 and 30).
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