H1 2022 Results

6th September 2022 

IQE plc

(“IQE” or the “Group”)

H1 2022 RESULTS

Cardiff, UK

6 September 2022

H1 Trading in line with management expectations

Strong progress against strategic priorities

 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 2022.

Americo Lemos, Chief Executive Officer of IQE, said:

“Earlier in the year we set out our strategic priorities to transform IQE, and in the first half of 2022 we made strong progress against these goals. Simultaneously, the business has demonstrated resilience despite the ongoing challenging global environment. The importance of compound semiconductors to a series of fundamental mega trends which will shape the global economy is gaining increasing recognition. I remain excited by the strength of IQE’s proposition coupled with the opportunities ahead to diversify and grow our business to deliver value for all our stakeholders.”

H1 2022 Financials

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

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

Financial Highlights

• Revenue of £86.2m (H1 2021: £79.5m) up 8.4% on a reported basis (1.4% growth at constant currency due to a currency tailwind), in line with previously issued guidance
• Wireless revenue of £46.6m (H1 2021: £41.6m) up 12.0% on a reported basis and 4.3% at constant currency
  • Driven by GaN sales to Aerospace and Security customers
  • Resilient GaAs sales weighted towards 5G and WiFi 6 markets, countering a slowdown and inventory build in the wider handset market
• Photonics revenue of £38.5m (H1 2021: £36.4m) up 5.7% on a reported basis and down -0.6% on a constant currency basis
• Continued maintenance of high market share in 3D Sensing VCSELs for consumer markets
• Resurgence in InP products for datacom
• CMOS++ revenue of £1.1m (H1 2021: £1.5m) a decrease of 27.2% on a reported basis and 33.3% on a constant currency basis, due to the re-phasing of a large customer order from H1 2022 to H2 2022
• Adjusted EBITDA of £12.3m (H1 2021: £11.6m) up 6.0% on a reported basis and flat at constant currency, in line with previously issued guidance
• Reported operating loss of £7.4m (H1 2021: £1.9m loss)
  • Impacted by impairment of intangible assets following investment decisions disclosed at FY 2021 results and planned closure costs associated with exit of Singapore facility as previously announced
• Adjusted cash inflow from operations of £8.3m (H1 2021: £9.1m)
• Total net cash capex and cash investment in intangibles of £3.5m (H1 2021: £8.1m)
  • £3.8m investment in PP&E capex related to previously disclosed tool investments in Taiwan
  • Proceeds of £4.1m from the disposal of assets related to Singapore site closure
  • Purchase of intangibles of £2.3m primarily relates to ongoing systems transformation programme
  • Ongoing investment in R&D with £1.6m (H1 2021: £1.8m) of development costs capitalised in the period
• Adjusted net debt of £6.7m as at 30 June 2022 (net debt of £5.8m as at 31 Dec 2021, net funds of £0.9m as at 30 June 2021)

Operational Highlights

• As previously highlighted, the Group’s refreshed strategy is focussed on building a solid platform for growth in 2022 to deliver further progress in 2023 and beyond
  • Additional detail on this strategy will be presented at IQE’s Capital Markets Day on Wednesday 9 November 2022
• Strong progress achieved to facilitate a future multi-year cycle of growth, driven by the macro trends of 5G, IoT and the Metaverse
  • Developing the Group’s commercial engine orientated to IQE’s end markets, focussed on our customers, and aligned with our technology innovation
  • Expanding and strengthening engagement with new and existing customers
  • Implementing the Group’s systems transformation programme to ensure agile and efficient business operations
• Business development progress
• Strategic partnership with Porotech announced in May to commercialise unique microLEDs for production at scale, with IQE as the epitaxy foundry partner
• Multi-year, high-volume strategic supply agreement with Lumentum announced in June for the development and production of a broad ranging of sensing products, including IQE as epitaxy partner of choice for LiDAR for autonomous vehicles
• Technology development
• Developed the world’s first commercially available 200 mm (8") VCSEL epiwafer, enabling a step-change in unit economics and resulting in market expansion for IQE into a broader range of customers and end products
• Global site optimisation programme
• Closure of Singapore site in June 2022
• Project to close Pennsylvania site and consolidate US MBE operations within North Carolina site is on track to be completed by 2024
• Environmental, Social and Governance (“ESG”) progress
• Formation of an ESG Board Committee to develop and monitor the execution of IQE’s ESG strategy and oversee communication of relevant activity
• Formal commitment to Net Zero carbon neutrality across operations by 2050, in accordance with the Science Based Targets initiative

Outlook

IQE management reiterates its full year 2022 revenue guidance of low single digit percentage growth (at constant currency), as strong Photonics sales driven by 3D sensing VCSELs and emerging revenues in microLEDs offset a degree of anticipated, macro-driven, softness in Wireless markets.

Operations remain resilient to macro-economic and supply chain risks. IQE is in a unique position to work with customers to ensure supply chain resilience and build strategic capacity across its global footprint.

At this level of revenue, the Group anticipates a similar adjusted EBITDA margin % to 2021 (at constant currency).

It is expected that full year PP&E capital expenditure will be in the range of £10-15m and we anticipate c.£8m of capitalised intangibles relating to development costs and systems transformation, both in line with previous guidance.

Results Presentation

IQE will present its H1 2022 Results via webcast at 9:00am BST today, Tuesday 6 September 2022. If you would like to view this webcast, please register by using the below link and follow the instructions:

https://stream.brrmedia.co.uk/broadcast/62ed08185a5e221df3779da4

Capital Markets Day

IQE will host a Capital Markets Day on Wednesday 9 November 2022, further details of which will be announced in due course.

Contacts:

IQE plc
+44 (0) 29 2083 9400
Americo Lemos
Tim Pullen
Amy Barlow

Peel Hunt LLP (Nomad and Joint Broker)
+44 (0) 20 7418 8900
Paul Gillam
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
Antonia Pollock: +44 (0) 7789 954 356
Marta Parry-Jones: +44 (0) 7884 742 400

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:

• handset devices
• global telecoms infrastructure
• connected devices
• 3D sensing

As a scaled global epitaxy wafer manufacturer, IQE is uniquely positioned in this market which has high barriers to entry. IQE supplies the whole market and is agnostic to the winners and losers 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 c. 685 employees across eight manufacturing locations in the UK, US and Taiwan, and is listed on the AIM Stock Exchange in London.