2023 Interim Results

Cardiff, UK

12 September 2023

Unaudited Results for the six months ended 30 June 2023

Investing for growth and managing costs to navigate temporary industry downturn

IQE plc (AIM:  IQE, "IQE" or the "Group"), the leading supplier of compound semiconductor wafer products and advanced material solutions to the global semiconductor industry, announces its interim results for the six months ended 30 June 2023.

Revenue for the period was £52.0m with a reported operating loss of £19.6m, an adjusted non-GAAP LBITDA of (£5.7m) and adjusted net funds position of £5.3m.

Americo Lemos, Chief Executive Officer of IQE, commented:

“IQE has delivered H1 revenue in line with our revised market guidance. In a challenging macro environment, we have taken decisive action to manage costs and deliver immediate efficiencies and longer-term margin benefits. We are accelerating our diversification strategy with new customer designs in GaN Power electronics and broadening our market penetration into the China wireless market. By expanding our customer base across the breadth of our product portfolio and ramping in strategic growth areas, we are focused on improving future business performance.”

H1 2023 Financial Results

^{*   All figures £’m excluding diluted and adjusted diluted EPS.}

^{** Adjusted Measures: Alternative performance measures are disclosed separately after a number of non-cash charges, non-operational items and significant infrequent items that would distort period on period comparability. Adjusted items are material items of income or expense that have been shown separately due to the significance of their nature or amount as detailed in note 8.}

^{*** Net funds/debt excludes IFRS16 lease liabilities and fair value gains/losses on derivative instruments.}

^{The following highlights of the first half results are based on these adjusted performance measures, unless otherwise stated.}

Strategic Highlights

• Commenced sampling for GaN Power with two new customers for 650 V devices
• Design wins with multiple customers to deliver wireless products to leading China cellular and Wi-Fi suppliers for growing China and India smartphone market
• Customer qualifications for high-speed data centre applications, with next-generation VCSELs to enable and support growth in the artificial intelligence (AI) markets
• Customer sampling and qualification in progress to supply automotive-grade LiDAR VCSELs for a major China-based customer
• Production of second generation, high performance VCSELs used in consumer mobile 3D Sensing applications for customers
• Developing industry’s first 150mm (6”) Indium Phosphide (InP) Photonics device platform, targeting customers in the Cloud/AI data centre markets
• Development of new laser materials technologies for a leading handset manufacturer for next-generation longer-wavelength consumer sensing applications
• Development of 200mm (8") Red, Green and Blue (RGB) epitaxial wafer products for microLED display qualification
• Developing frameworks and processes to adopt and align with the Task Force on Climate-Related Financial Disclosures (TCFD) with first TCFD Statement published in the 2023 Annual Report and Financial Statements
• Developing emissions targets in accordance with the Science Base Targets initiative (SBTi) with IQE on track to submit targets within the 24 month commitment window

H1 2023 Financial Highlights

• Revenue of £52.0m (H1 2022: £86.2m) down 39.7% on a reported basis and 42.6% at constant currency
  • Wireless revenue of £22.4m (H1 2022: £46.6m) down 51.9% on a reported basis, largely as a result of weakness in global handset demand and supply chain inventory build
  • Photonics revenue of £28.0m (H1 2022: £38.5m) down 27.2% on a reported basis, primarily as a result of softness in the handset market and a slowdown in Asian telecoms infrastructure programmes
  • CMOS++ revenue of £1.6m (H1 2022: £1.1m) up 43.1% on a reported basis, due to growth in Silicon-based switches for power control
• Adjusted LBITDA of (£5.7m) (H1 2022: £12.3m EBITDA) down 146.5% on a reported basis, adversely impacted by a reduction in sales and under-utilisation of capacity, particularly in the Wireless business
• Reported operating loss of £19.6m (H1 2022: £7.4m loss)
• Adjusted cash inflow from operations of £4.3m (H1 2022: £8.3m) benefitting from management of working capital
• Total net cash capex and cash investment in intangibles of £8.5m (H1 2022: £7.6m)
  • £5.2m investment in PP&E capex (H1 2022: £3.8m) prioritising high growth GaN power and display capacity as set out at the time of the equity raise
  • Purchase of intangibles of £1.7m (H1 2022: £2.3m) primarily relates to ongoing systems transformation programme
  • Ongoing investment in R&D with £1.6m (H1 2022: £1.6m) of development costs in the period focused on power electronics and microLEDs
• Adjusted net funds of £5.3m as at 30 June 2023 (net debt of £15.2m as at 31 Dec 2022, net debt of £6.7m as at 30 June 2022) with an undrawn Revolving Credit Facility of $35m (£27.3m) available to the Group
• Equity raise of £29.7m (net proceeds) completed in May in order to strengthen the balance sheet and underpin strategic investment
• Cost optimisation
  • Optimised manufacturing plan for improved asset utilisation
  • Headcount reductions delivering c.10% in year savings, while retaining key skills for growth with associated H1 2023 restructuring costs of £1.2m
  • Reduction in non-labour costs to deliver greater than 20% in year savings
• Global site optimisation programme
  • US MBE operations consolidation within North Carolina site on track to be completed by H1 2024
  • Ongoing review into global footprint optimisation to improve operational efficiency and profitability

Current trading and outlook

The current temporary semiconductor industry downturn is stabilising, with continued pockets of recovery expected in H2 2023, albeit more slowly than anticipated at the time of the FY 2022 results.

Improvement is expected in 2024 as the supply chain normalises and customer demand recovers.

The Group anticipates double digit revenue growth in H2 2023 versus H1 2023, and expects to be profitable at an adjusted EBITDA level for FY 2023.

Results Presentation

IQE will present its H1 2023 Results via webcast at 9:00am BST today, Tuesday 12 September 2023. If you would like to view this webcast, please register by using the below link and following the instructions:     

https://stream.brrmedia.co.uk/broadcast/64df6b6ae4c3ecf0bd56f5e4

Glossary

Contacts:

IQE plc
+44 (0) 29 2083 9400
Americo Lemos
Neil Rummings
Amy Barlow

Peel Hunt (Nomad and Joint Broker)
+44 (0) 20 7418 8900
Paul Gillam
Richard Chambers
James Smith

Numis (Joint Broker)
+44 (0) 20 7260 1000
Simon Willis
Hugo Rubinstein
Iqra Amin

Headland Consultancy (Financial PR)
+ 44 (0) 20 38054822
Andy Rivett-Carnac: +44 (0) 7968 997 365
Chloe Francklin: +44 (0)78 3497 4624

ABOUT IQE

http://iqep.com

IQE is the leading global supplier of advanced compound semiconductor wafers and materials solutions that enable a diverse range of applications across:

• Smart Connected Devices
• Communications Infrastructure
• Automotive and Industrial
• Aerospace and Security

As a scaled global epitaxy wafer manufacturer, IQE is uniquely positioned in this market which has high barriers to entry. IQE supplies the global market and is enabling customers to innovate at chip and OEM level. By leveraging the Group’s intellectual property portfolio including know-how and patents, it produces epitaxy wafers of superior quality, yield and unit economics.

IQE is headquartered in Cardiff UK, with employees across eight manufacturing locations in the UK, US and Taiwan, and is listed on the AIM Stock Exchange in London.