11 September 2020
IQE reports record first-half revenue of £89.9m
Epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has reported record first-half revenue of £89.9m in 2020, up 35% on first-half 2019’s £66.7m, despite a foreign exchange (FX) tailwind of £2.5m.
Wireless revenue returned to growth, rising by more than 50% year-on-year, from £30.1m to £45.5m, with strength in wafers for power amplifiers (PAs) driven by 5G handset demand, and significant growth in gallium nitride on silicon carbide (GaN-on-SiC) wafers for antenna elements deployed in 5G infrastructure roll-outs.
Photonics revenue grew by more than 20% year-on-year from £35.5m to £43.4m, with continued growth in existing major supply chains for 3D sensing driven by content gain, and strong demand for lasers for communications and industrial applications as well as infrared (IR) sensors for aerospace and military applications.
CMOS++ revenue shrank slightly, from £1.09m to £0.95m.
“Building on our investments in our products, our people and our infrastructure, we have demonstrated both financial and operational resilience and have delivered record first-half revenues,” says CEO Dr Drew Nelson.
Operational highlights are listed as:
- Resilience during a global pandemic
- continuous production at all global sites throughout the period;
- strong underlying demand in IQE’s markets, with telecoms and connectivity increasingly important at a time of social distancing and remote working.
- Continued progress in operations
- continued focus and improvement in productivity and yield in key IQE manufacturing sites, contributing to gross profit improvements;
- decision taken to close the Pennsylvania site and consolidate US-based molecular beam epitaxy (MBE) activities in the North Carolina site by 2024 communicated to staff and customers post half-year-end;
- decision to focus cREO (crystalline rare-earth oxide) development on filters and pause other cREO development due to re-assessed timing of anticipated revenue streams for the technology.
Adjusted operating profit was £4.3m, compared with a loss £1.9m a year ago, representing a return to profitability driven by additional volume against IQE’s high operational gearing.
Adjusted cash inflow from operations was £16.2m (up from £6.7m a year ago), representing about 100% adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) conversion.
During first-half 2020, cash and cash equivalents rose by £8.6m, from £8.8m to £17.4m.
As a result of (1) increased cash generation from operations and (2) a reduction in capital expenditure (following completion of the infrastructure phase of IQE’s expansion in Massachusetts USA, Hsinchu Taiwan, and at its Newport Foundry in South Wales), net debt (excluding lease liabilities) has been cut from £16m at the end of 2019 to £7.4m.
On 24 January 2019, IQE agreed a new £26.7m ($35m) three-year multi-currency revolving credit facility from HSBC Bank plc. On 29 August 2019, IQE agreed a new £30m five-year Asset Finance Loan facility from HSBC, of which £25m is drawn down.
Financial projections to end-2021 show that IQE is forecast to continue to comply with its banking covenants and has adequate cash resources to continue operating for the foreseeable future.
“IQE remains focused on executing our technology roadmap, and we are confident this momentum will continue into second-half 2020,” says Nelson. “Our business remains well-placed to capitalize on opportunities in 5G mobile network infrastructure and handsets, 3D sensing in vertical-cavity surface-emitting laser (VCSEL)-based products and a host of advanced sensing applications across a broad optical spectrum.”
IQE says that, despite the uncertainty of the global pandemic and anticipated global recession, performance to date has been strong and the firm’s customers have recently reported positive trading updates and outlooks, underlining the resilience of the sector. IQE has hence now provided full-year 2020 revenue guidance of at least £165m, up 18% on 2019’s £140m. The firm expects to deliver at least a mid-single-digit adjusted operating profit for 2020.
Capital expenditure should be no more than £10m. Any investment in additional tools will be linked to future revenue opportunities, notes IQE.