IQE PLC – Trading Update

IQE PLC – Trading Update

IQE plc (AIM: IQE) the leading supplier of advanced wafer products and material solutions to the semiconductor industry, provides a trading update for the year ended 31 December 2019 and for the first quarter of the 2020 financial year.

2019 Financial Summary *

  FY 2019
£’m
FY 2018
£’m
Revenue 140.0 156.3
 
Adjusted EBITDA ** 16.2 26.4
 
Adjusted operating (loss)/profit ** (4.7) 16.0
 
Adjusted operating cashflow ** 16.5 17.0
 
Capital investment (PP&E) 31.9 30.3
 
Net (debt)/funds*** (16.0) 20.8

*  This trading update represents a pre-announcement based on unaudited financial accounts. The Full Year Results for 2019 have been delayed due to advice from the FCA and FRC in the context of the evolving Coronavirus situation. A new reporting date will be determined based on future direction from the FCA and FRC.
              
**   Adjusted Measures: The Directors believe that the adjusted measures provide a more useful comparison of business trends and performance. Adjusted measures exclude certain non-cash charges and one-off or non-operational items which will be fully disclosed in the Full Year Results at a later date. The following highlights of the full year results is based on these adjusted profit measures, unless otherwise stated.

*** Net (debt) / funds excludes IFRS16 lease liabilities.

2019 Financial Highlights

  • Revenue of £140.0m (FY 2018: £156.3m) in line with the November 2019 Trading Update guidance. 10% reduction year-on-year with Photonics growing by 4% and Wireless decreasing by 23%. The year on year reduction in revenue was primarily due to two customers, one in Wireless and one in Photonics.
  • Adjusted operating loss of £4.7m (FY 2018: profit of £16.0m) in line with the November 2019 Trading Update guidance, reflecting negative operating leverage and an increase in depreciation and amortisation from targeted investments.
  • Capital expenditure of £31.9m was incurred (FY 2018: £30.4m), as the Group completed the infrastructure phase of the capacity expansions at its Newport, Taiwan and Massachusetts sites.
  • Adjusted operating cashflow of £16.5m (FY 2018: £17.0m) representing 100% Adjusted EBITDA to Adjusted Operating Cash conversion.
  • Net Debt excluding lease liabilities of £16.0m as at 31st December 2019 near the lower end of £15-20m range highlighted in November 2019 Trading Update guidance, reflecting strong working capital management.

 

2019 Operational Highlights

  • Infrastructure phase of the capacity expansion programme completed:
    • The Mega Foundry in Newport, South Wales entered production for 3D sensing products, in May 2019 following full and comprehensive end-to-end supply chain qualification with our lead VCSEL customer
    • Capacity in Taiwan has been increased by 40%, enabling growth in revenues within expanding Asian markets. Five tools now qualified for wireless products for a major Taiwanese Foundry, with four currently in production.
    • Consolidation and investment in GaN capacity in Massachusetts completed, to capitalise on forthcoming 5G infrastructure deployments.
  • Newport Mega-Foundry 3D Sensing Production and Qualification progress:
    • Mass production for existing major supply chain on four tools at year end, with stable demand forecast through H1 2020. Currently five tools in production for this customer
    • Commencement of production in H2 2019 with a second major customer serving Android supply chains
    • Announcement in H2 2019, of device and module qualification with a third major customer related to Android supply chains and other Android qualifications are ongoing
  • Next Generation Product Development:
    • Continued strong progress in the development of Filters (based on IQE’s patented cREO technology) and Switches for 5G
    • Introduction of 10G and 25G Full Service Distributed Feedback (DFB) Laser for high-speed datacoms using Nano-Imprint Lithography, and 10G and 25G Avalanche Photodiodes (APDs), both device types for high speed datacoms serving the 5G infrastructure and datacentre markets
    • Continued Photonics roadmap progress including best in class results for Long Wavelength Vertical Cavity Surface Emitting Lasers (VCSELs) for future smartphone and LIDAR deployment plus lasers and sensors for environmental and health monitoring
  • Evolution of the Board and Executive Management to support growth ambitions and scalability of operations:
    • Phil Smith CBE, appointed as Chairman
    • Carol Chesney, FCA, as Non-Executive Director and Chair of the Audit Committee
    • Tim Pullen, ACA, appointed as Chief Financial Officer (CFO)
    • Executive Management Board established and fully operational
  • Increase to credit facilities to support navigation of challenging market conditions:
    • £30m asset financing facility put in place, increasing total available facilities to ~£57m (£25m drawn down at 31st December 2019)

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

In 2019 IQE faced extremely challenging market conditions and our financial performance reflects the considerable disruption in global semiconductor markets and supply chains, caused by the geo-political environment.

We remain confident in IQE’s ability to adapt to changes in global technology markets as a result of our geographic and product diversity. We have also made significant strategic and operational progress in 2019, including the completion of the infrastructure phase of our global expansion projects.

The spread of coronavirus has introduced significant near-term uncertainty into global economies and markets. However, to date we have not experienced any significant disruption to our current production or order intake relating to coronavirus, but we have implemented appropriate business continuity measures and we are well placed to withstand the near-term market uncertainty. We continue to monitor this fast-moving situation very closely”.

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