IQE reports performance in line with expectations

20 January 2015

Cardiff, UK. 20th January 2015: IQE plc (AIM: IQE; “IQE”, the “Group”), the leading global supplier of advanced wafer products and wafer services to the semiconductor industry, today announces an unaudited trading update for the year ended 31 December 2014.
The Board is pleased with the recent performance of the Group. It can confirm that trading during the second half of the year has been good and that it expects to report a performance for the year as a whole in line with market expectations.


Headline Financial Performance 
The group’s revenue for the year is expected to be approximately £112m, with second half revenues of c.£60m. Other headline trading figures are also expected to match expectations. EBITDA is projected to be up by c.8% year on year at approximately £27m, following a second half EBITDA of approximately £16m. Adjusted, fully diluted EPS* for the year is expected to be up c.20% at approximately 2.4p.
Encouraging progress has been made on managing our net debt position. We expect that net debt at 31 December 2014 will be c.£31m, down from £34.4m at 31 December 2013. This progress has been made after approximately £5m of cash restructuring costs (now complete) and after approximately £8m of contingent deferred consideration (payments of which will end in 2016). We expect to make further progress on reducing our net debt position through 2015.


Market Drivers
The Compound Semiconductor materials that we make are used by major global chip companies to produce the chips which are embedded in a wide range of high-tech applications. The unique properties of these materials are fundamental to, and enable, a diverse range of end markets. These include global wireless communications, a broad range of consumer and industrial applications using advanced photonic lasers and sensors, high resolution infrared systems, advanced solar power (CPV), high efficiency LED lighting, and efficient power switching.
Beyond this, we are also working with leading silicon chip companies and on a number of major government-funded programmes to develop the next generation of technology which will combine the scale and maturity of the silicon industry with the advanced properties of compound semiconductors.
Historically, approximately 80% of our sales have been into the wireless communications market. This market continues to enjoy significant and sustainable long term growth, driven by the proliferation of increasingly complex wireless communication devices and systems such as LTE/4G, dual band WiFi, and GPS location devices, which require increasingly complex compound semiconductor solutions. Combined with the rapid evolution of the Internet of Things (IoT), the increasing deployment of optical devices into handsets, tablets and computers, and the rapid growth in wearable technologies, a broader range of compound semiconductors are increasingly being required for mass consumer markets.
As a result, we expect continued growth in demand for our wireless products complemented by more rapid growth in our photonics related businesses. This dynamic should be further enhanced by the deployment of high capacity optical data transmission systems and storage (datacentres), as the growth in data continues to grow exponentially. Further growth in our business will be supported by the future market development of our advanced solar and power switching business units.


Business Unit Highlights
Looking at the performance of our individual businesses, overall progress has been good.
Wireless is our largest division where we are a market leader with an estimated global market share of more than 50%. Our Wireless business enjoyed double digit sequential growth in H2 over H1 driven by the factors outlined above. Furthermore, just after the period end, we secured a major contract renewal with an important tier 1 customer estimated to be worth over US$50m, and which will also lead to some expansion of our market share – a significant highlight to the start of 2015. The outlook for this business unit remains robust, driven by increasing adoption of 4G and LTE globally.
Our Photonics business has also made excellent progress with revenues growing by over 20% year-on year. We further strengthened our relationships with major tier 1 photonic companies with additional long term supply agreements, and made excellent progress on our range of VCSEL products, both technically and commercially, with several important world firsts in energy efficiency and speed records for datacentre applications, and initial design wins across several other application areas.
Our Infrared business won some significant orders including one in October 2014 for $1.1m and more recently in January 2015 for $3.25m. We remain excited about the progress we are making in this field, which is also beginning to see some initial adoption for potential uses in consumer related markets.
Our Advanced Solar Compound Photo Voltaic (CPV) technology has also made good progress, albeit this market has taken much longer to develop than we initially expected. However, we have now moved from a development phase into pilot production, with initial orders received in Q4 2014, and wafers now being shipped into the field. Looking ahead, we are pressing ahead with our plans to increase production during 2015/16.
Finally, we have made excellent progress on our Gallium Nitride technology platforms, particularly for base station and power switching applications. We announced a major supply relationship with one of the industry leaders in this technology, MACOM, and continue to make strong technical progress.


Outlook
The prospects for the current financial year are positive. The Group is in good shape and the Board is confident that it is well set to achieve market expectations for 2015.
The outlook is encouraging, with the Wireless business enjoying an improved outlook, the Photonics business continuing to show strong double digit growth, and the Group’s new technologies, including the development of the gallium nitride (GaN), progressing well.


Dr Drew Nelson, CEO and President of IQE plc, said:
“We are excited by the market developments that are leading to the increasing deployment of compound semiconductor solutions across a range of applications, and that consequently offer potential for IQE to deliver continued steady growth as a result of the Group’s unique position in the Compound Semiconductor materials marketplace.
We are confident about the progress that we expect to make during 2015. I look forward to updating shareholders on the how we are performing when we announce our final results in March.”


*  Adjustments to profits, cash flows and EPS reflect non-cash charges and exceptional items

CONTACTS:

IQE plc +44 (0) 29 2083 9400
Drew Nelson
Phil Rasmussen
Chris Meadows


Canaccord Genuity + 44 (0) 20 7523 8000
Simon Bridges
Cara Griffiths


Peel Hunt +44 (0) 20 7418 8900
Andy Crossley
Richard Kauffer


Broker Profile +44 (0) 20 7448 3244
Simon Courtenay
Harry Rippon


Note to Editors ABOUT IQE www.iqep.com


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, 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 a number of manufacturing and R&D facilities facilities worldwide.