Strong operating performance in first half of 2009 demonstrates resilience of IQE’s business model

15 July 2009

IQE plc (AIM: IQE, “IQE” or the “Group”) the leading global supplier of advanced semiconductor wafer products and wafer services to the semiconductor industry, provides a trading update for the first half ended 30 June 2009.
The Group achieved a strong operating performance in the first half of 2009 despite the industry wide destocking that adversely affected sales during Q4 2008 and Q1 2009. As anticipated in the 2008 preliminary announcement on 24 March 2009, this destocking ran its course in early Q2 and orders picked up sharply in May and June. The Board therefore expects that the Group’s first half performance will be at least in line with market expectations, with revenues of about £20.0 million and EBITDA of at least £1.2 million.
This sound financial performance during an extremely tough economic environment clearly demonstrates the resilience of the Group’s business model. The decisive and proactive action taken by management during Q4 2008 ensured that the business remained EBITDA positive even at the lowest point in the cycle in January and February of 2009.
As the business resumes rapid growth the Group will now continue to benefit from lower costs and higher margins resulting from many of the structural efficiencies achieved.
The increase in trading activity towards the end of the first half has seen some absorption of cash into working capital, reflecting higher trading volumes. Net debt is expected to be better than market expectations of approximately £20.0 million as at 30 June leaving more than £5.0 million funding headroom. The Group has been operating well within its banking arrangements and the Board expects net debt to decrease in the second half.
The outlook for the second half remains positive, with the Group expecting continued strong growth in sales volumes. This positive outlook, despite the continuing backdrop of global economic uncertainty, reflects the Group’s powerful positioning in its high growth markets, principally in wireless communications, including 3G and feature rich smartphones.
In addition, new product development continues with excellent progress in solar activities, where customers are achieving world record efficiency results, and in ultra low power LED products. Further progress on next generation electronic materials was demonstrated by the recent release of new engineered substrates such as Germanium on Insulator (GeOI) for next generation integrated circuits and devices.
Dr Drew Nelson, IQE’s Chief Executive, said:
We are seeing indicators of strong growth returning to a number of the high-end markets in which IQE operates and as anticipated in the March trading outlook, it is the smartphone products that have been amongst the first to resume growth amongst our customer base.
Our financial performance has remained strong. We are achieving optimal production efficiencies with lean operations across the Group and expect to benefit from our high operational gearing as sales growth recovers. The Board remains confident that strong demand for our exciting and innovative product range will resume during the second half of 2009.
IQE expects to report its interim results on 2 September 2009.

Contacts:
IQE plc (+44 29 2083 9400) Chris Meadows Phil Rasmussen Drew Nelson
Noble & Company Limited (+ 44 20 7763 2200) John Llewellyn-Lloyd Sam Reynolds
College Hill (+44 20 7457 2020) Adrian Duffield Carl Franklin  

Note to Editors IQE is the leading global supplier of advanced semiconductor wafers with products that cover a diverse range of applications, supported by an innovative outsourced foundry services portfolio that allows the Group to provide a 'one stop shop' for the wafer needs of the world's leading semiconductor manufacturers.
IQE uses advanced crystal growth technology (epitaxy) to manufacture and supply bespoke semiconductor wafers ('epi-wafers') to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. IQE is unique in being able to supply wafers using all of the leading crystal growth technology platforms.
IQE's products are found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as mobile handsets and wireless infrastructure, Wi-Fi, WiMAX, base stations, GPS, and satellite communications; optical communications, optical storage (CD, DVD), laser optical mouse, laser printers & photocopiers, thermal imagers, leading-edge medical products, barcode, ultra high brightness LEDs, a variety of advanced silicon based systems and high efficiency concentrator photovoltaic (CPV) solar cells.
The manufacturers of these chips are increasingly seeking to outsource wafer production to specialist foundries such as IQE in order to reduce overall wafer costs and accelerate time to market.
IQE also provides bespoke R&D services to deliver customised materials for specific applications and offers specialist technical staff to manufacture to specification either at its own facilities or on the customer's own sites. The Group is also able to leverage its global purchasing volumes to reduce the cost of raw materials. In this way IQE's outsourced services, provide compelling benefits in terms of flexibility and predictability of cost, thereby significantly reducing operating risk.
IQE operates six manufacturing facilities located in Cardiff (two) and Milton Keynes in the UK; in Bethlehem, Pennsylvania and Somerset, New Jersey in the USA; and Singapore. The Group also has 11 sales offices located in major economic centres worldwide.