Record financial results reflect the adoption of IQE’s VCSEL technology in mass market applications and broadening IP portfolio sets the Group for continuing diversification and growth.
IQE plc (AIM: IQE, “IQE” or the “Group”), the leading global supplier of advanced wafer products and wafer services to the semiconductor industry, announces its final results for the year ended 31 December 2017.
Financial highlights
Column 1
Column 2
Column 3
Column 4
0
£’ Million (except EPS)
2017
2016
*Restated
Change
1
Revenue
154.5
132.7
16.4%
2
Wafers
152.6
126.0
21.1%
3
Licensing
1.9
6.7
(71.9%)
4
Adjusted1 Operating Profit
26.4
22.1
19.2 %
5
Wafers
24.5
15.5
58.4%
6
Licensing
1.9
6.7
(71.9%)
7
Adjusted1 Profit Before Tax
24.3
20.6
18.0 %
8
Adjusted1 Fully Diluted EPS2
3.4p
*2.9p
16.3 %
9
Cash generated from operations
29.7
22.5
32.6 %
10
Capital investment3
34.8
19.1
82.5 %
11
Net funds / (debt)
45.6
(39.5)
1. Non-GAAP adjusted measures have been presented as detailed in note 4
2. Fully diluted EPS for 2016 restated from 3.0p to 2.9p as detailed in note 1
3. Capital Investment represents cash invested in tangible and intangible assets, including assets acquired under finance lease of £6.6m (2016 : £nil), and excludes consideration paid for acquisitions of £nil (2016: £11.3m)
Strategic highlights
Continued revenue diversification with strong growth in high margin product lines
Record financial results reflect the adoption of IQE’s VCSEL technology in mass market consumer applications in H2 of 2017
Photonics sales up 109% to £47.6m for the full year, with H2 2017 sales up more than 160% over prior year H2.
The strong ramp of VCSEL sales during H2 represents a unique achievement in the industry, as IQE leveraged its expertise of mass market wireless supply to the significantly more complex VCSEL materials system.
Operational gearing of the business supports strong profit and cash generation
Wafer sales up 21% to £152.6m, propelling adjusted operating profit from wafer sales up 58% to £24.5m
Strong conversion of adjusted operating profit into operating cash of 113% (PY:102%)
Excellent progress with our investments in capacity, and our growth and diversification strategy
Capital investment increased to £34.8m to address near term and forseeable growth opportunities (PY £19.1m)
Net funds of £45.6m (PY: Net debt £39.5m), reflects new equity raised of £95m (gross) in November 2017 to fund ongoing capacity expansion in 2018 to meet rising demand as VCSEL adoption broadens
New ‘Mega Foundry’ in Newport, South Wales in progress with plan to house up to 100 tools, creating a facility with unparalleled capacity and economies of scale in the industry. The first 5 tools are now in-situ and on track for production in H2 2018 as expected, and a further 5 tools are scheduled for installation and commission by end Q3. Preparation is underway to acquire at least a further 10 tools within the next 12-18 months as demand requires.
IQE’s expanding portfolio of intellectual property, including over 180 patents, is enabling the group to differentiate itself in the marketplace, and strengthen its business model by not only being the global leader of choice in the supply of advanced semiconductor wafers, but increasingly able to provide comprehensive “advanced materials solutions” providing chip designers with a new “toolkit” to develop chips which push the boundaries of performance, enable higher levels of integration, and reduce the barriers of cost.
Excellent progress with technology development including demonstration of key enabling technology for high performance wireless filters, cREO for integration of CS materials technologies on silicon, and Quasi Photonic Crystals and Nano-Imprint Lithography for a wide range of optical technologies including DFB lasers, integrated 3D sensing solutions and silicon photonics applications.
Business Highlights
Broadening Customer engagements across multiple business sectors
VCSEL ramp initially supplied under a number of multi-year contracts. Market engagement has continued to broaden to multiple Tier 1 OEM’s, targeting mass market ramps over the next 12 to 18 months.
Qualifications in progress with IQE’s GaN on Silicon technology for base station and other high power RF applications, providing route to accelerate wireless growth
Customer interactions broadening for InfraRed. Now working with major OEM and device companies in developing InfraRed products for mass market consumer applications.
Continued good progress by IQE’s Joint Ventures in the UK and Singapore. Significantly expanding external customer engagements and improving financial performance reflect the achievement of key milestones for these early-stage businesses.
Outlook
Continued growth in 2018 driven by expansion of existing business and qualifications of new business streams
Photonics revenue expected to grow c.35% to 60% in 2018, based on expansion of products currently in production and the completion of ongoing qualifications . The introduction of new technologies and additional market opportunities provide potential for yet higher growth rates.
Wireless revenue expected to grow up to c.5% in 2018; SMI inventories expected to replenish in 2018, with potential for revenue expansion as GaN products make stronger contribution
InfraRed revenue expected to grow c. 5% to 15% in 2018, with customer engagement broadening
Potential for strong growth in 2019 and beyond
Increasing VCSEL adoption for 3D sensing expected to accelerate across multiple smartphone OEMs, introduction of world facing 3D technology, and first deployment of LIDAR and several other high volume sensing applications
Increasing deployment of InP for high speed FTTX and datacentre applications
Increasing CS content in 5G communication systems and increasing adoption of GaN for base stations and other high power RF applications, including consumer driven opportunities
Increasing use of Infrared products in mass market consumer applications
Revenues from both Power switching and non terrestrial solar markets
Adoption of IQEs broad IP portfolio into multiple commercial applications utilising cREO, NanoImprint Lithography (NIL) and Quasi Photonic Crystal (QPC) technologies
Multiple qualifications in progress with DFB laser products.
Expected Compound Annual Growth Rates over the next 3 to 5 years, based on current products, in the ranges of: Wireless up to 10%; Photonics 40-60%; and InfraRed of 5-15%. Potential for higher growth with new product introductions.
Dr Drew Nelson, IQE Chief Executive, said:
“IQE delivered outstanding performance in 2017. Wafer revenues were up 21%, propelling adjusted operating profit from wafer sales up 58%. This reflects the high operational gearing in our business, and a more profitable sales mix.
“Photonics continues to be the star performer with 109% year on year growth in sales, and H2 sales up more than 160% over prior year H2. This substantial growth is largely being driven by VCSEL products for mass market consumer applications that ramped through H2 of 2017. The depth and breadth of customer engagements in Photonics provides a solid platform for continuing strong growth with several new product launches forecast over the next 12-18 months for multiple OEMs.
“We continue to expand capacity to meet forecast increases in demand, as well as driving throughput and yield improvements to release latent capacity and drive margin expansion in our existing business. Progress on the new foundry has progressed exceptionally well, with the first 5 five tools already installed and with further expansion scheduled for Q3 and beyond. This is an incredible achievement given that the initial building works only began in September 2017.
“Armed with an unparalleled breadth of IP and patent coverage, our business model is evolving from being the global leading supplier of advanced semiconductor wafers, to becoming a globally leading ‘advanced materials solutions’ company where our unique innovative materials and associated nanoscale fabrication technologies provide a route for our customers to push the boundaries of chip performance, extend semiconductor integration capabilities and thereby reduce the cost barriers to broad consumer adoption.”
“The Board looks forward to the future with a high degree of anticipation and confidence”
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
SLX Price at posting:
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