IQE PLC – Post Close Trading Update

IQE PLC – Post Close Trading Update

IQE plc (AIM: IQE), the leading global supplier of advanced wafer products and materials solutions to the semiconductor industry, provides the following post close trading update.

IQE expects to deliver revenues of not less than £156m for FY 2018 (FY 2017 £154.5m) and Adjusted EBITDA of at least £27.5m (FY 2017 £37.0m). Net Cash at 31 December 2018 was £20.8m (31 December 2017 £45.6m). On 24 January 2019, the Company agreed a new $35m multi-currency revolving credit facility (the “Facility”), provided by HSBC and which is secured over the assets of IQE. The Facility has a three-year term and an interest rate margin of between 1.45 and 1.95 per cent per annum over LIBOR on any drawn balances. The Facility is undrawn.

As previously announced, the Company is closing its facility in New Jersey (“NJ”) in order to consolidate its US based GaN manufacturing capacity in its existing Massachusetts (“MA”) facility. The cost of the NJ closure is estimated to be £3.35m, of which £1.2m will comprise the cash costs of severance and reactor decommissioning, with £2.15m of non-cash impairments. These costs will be an exceptional charge in the FY 2018 accounts. IQE expects to achieve annual operating cost savings of approximately £3m per annum, post the closure.

The Company also expects to incur an additional exceptional charge of approximately £4.5m, relating to an onerous lease accounting provision for the period through to the end of the lease in Q2 2022, for the unused and unlet space in its Singapore facility. This exceptional provision has no cash impact.

The company reiterates 2019 and longer term guidance and will publish its full year-end results on 20th March 2019.

Dr Drew Nelson, Chief Executive of IQE, said:

“It is of course very disappointing that a substantial inventory correction in the first half of 2018 and the sudden disruption in a significant supply chain and short-term demand for VCSEL wafers in November materially impacted our expected 2018 revenues and profitability. However, the position and prospects of IQE will not be defined by our 2018 financial results which were delivered with none of the benefits of the investment programs which are now nearing completion.

“By the end of H1 2019 we will have completed a significant two-year investment program across our global operations, commissioning our new mega-foundry in Newport which is dedicated to photonics, installing additional wireless capacity in Taiwan, expanding our GaN capacity in MA and Infrared capacity in Milton Keynes. In addition, we have made a considerable investment in engaging with more than 25 VCSEL chip companies underscoring IQE’s exceptional leadership position in the emerging VCSEL supply chains based on our technical excellence, proven ability to ramp and dedicated commitment to install capacity. We will bring additional photonics capacity into production in Phase 1 (first 10 reactors) in the new Newport foundry during H1 2019, with 12 companies already actively qualifying the new facility.

“The investment we have made in rationalisation, capacity and new products and the opportunity that this has created will deliver strong performance across our wireless, photonics and infra-red business units in the key sector areas of sensing, connectivity and energy, leading to margin expansion, increasing free cash flow and profitability in 2019 and beyond”.

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