IQE plc : Trading Update

Cardiff, UK, 22 July 2013: 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 statement for the six months ended 30 June 2014, ahead of its full year results which will be announced on 16 September 2014.

Financial Highlights

• EBITDA of approximately £11m, up 5% on H1 2013 (£10.5m);
• First-half revenues of approximately £52m, down 17% on H1 2013 (£63m);
• Revenues impacted by both wireless destocking and strength of sterling
• Net debt of less than £36m (H1 2013: £37.5m);
• Reorganisation and restructuring cash costs of approximately £3.0m in H1 2014;
• Wireless demand recovered during Q2 from customer destocking;
• Photonics expected to deliver revenue growth of approximately 20% against H1 2013;
• Group remains on track to achieve full year expectations

As indicated at the end of 2013, first half revenues were impacted by destocking at a number of major customers due to softness in the handset market at the end of the year and into the start of 2014, coupled with the strength of sterling which also had an adverse translational effect. As a result, the Board expects first-half revenues of approximately £52m, down 17% on the first half of 2013 (£63m).  In constant currency, sales were down approximately 10%.
While revenue was down, a combination of efficiency gains, economies of scale, and sales mix has improved profitability.  The group expects to deliver EBITDA of approximately £11m, up 5% on the prior year (H1 2013: £10.5m).  Net debt is expected to be less than £36m (H1 2013: £37.5m) despite one-off reorganisation and restructuring cash costs of approximately £6.5m during the year to 30 June 2014.   The group also invested in a strategic inventory build of approximately £2m during H1 2014 as part of its synergy programme.

Market Highlights

During Q2, wireless demand began to recover from the customer destocking which took place earlier in the year.  Customers order levels have improved, and we are seeing positive customer forecasts for the rest of the year.  This outlook primarily reflects the acceleration of TD-LTE smartphone adoption in China, new handset launches, and the increasing adoption of new dual band wifi (802.11ac).  Compound Semiconductors continue to be the critical technology enabling the advancement of global wireless communication solutions.
The photonics business is performing well and we expect to see 20% revenue growth in constant currency against H1 2013.  This revenue increase reflects the transition from research and development to high volume production, and follows a number of contract wins announced in the past year.  This business is primed for continuing strong performance. 
The advanced solar (CPV) business is in the final stages of qualification and remains on track to move from customer qualification to production in H2.  With continued progress in the end market, and a new strategic investor involved with our CPV partner, Solar Junction, the outlook for our engagement in this rapidly growing market looks highly attractive.  
The development of advanced products including gallium nitride materials and compound semiconductor on silicon technologies are progressing well, with a number of major technical and commercial milestones being delivered during the first half.   These milestones point to a transition to volume production over the next two to three years, as these advanced technologies replace silicon and other materials in the rapidly growing markets for energy efficient devices such as LEDs and Power Semiconductors over the next few years.
The Board is confident that the Group remains on track to achieve its expectations for the full year. 
Dr Drew Nelson, Chief Executive of IQE, said:

" IQE is in good shape and our expectations for the year remain positive. The improvement in profitability reflects the work we have done to improve efficiencies and deliver economies of scale. We remain on track to deliver further synergies during the second half.  "
"In terms of trading all our lead indicators are pointing in the right direction. The destocking was concluded during Q2 and customers are forecasting an upbeat second half. Our investment in photonics technology is delivering tangible benefits, and has resulted in multiple contract wins. Our CPV business is in the final stages of qualification and remains on track to move from final development and customer qualification to production in H2. "
" Looking a little further in to the future, we have also made technical and commercial progress with our GaN development. We are well positioned to enjoy a transition to volume production in the next two to three years"

Contacts:

IQE plc [phone]
Drew Nelson
Phil Rasmussen
Chris Meadows

Canaccord Genuity + 44 (0) 20 7523 8000
Simon Bridges
Cameron Duncan

Peel Hunt [phone]
Richard Kauffer
Daniel Harris

Broker Profile [phone]
Simon Courtenay
Tamsin Shephard

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Source: IQE plc via Globenewswire

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