IQE PLC Iqe Plc : 2017 Pre-close Full Year Trading Update

 
TIDMIQE 
 
 
   IQE plc 
 
   Trading on track to exceed full year expectations. 
 
   Cardiff, UK. 20 December 2017: 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 pre-close trading 
update for the full year ending 31 December 2017. 
 
   The Group announces that it expects full year revenues to be ahead of 
market expectations, and to be not less than  GBP150m for the year 
ending 31 December 2017. Wafer sales are on track to deliver strong 
double-digit growth in 2017 and to continue to diversify.  The three 
primary markets are Photonics, InfraRed and Wireless. 
 
   The Photonics business has enjoyed strong double-digit growth over the 
past few years largely driven by new product development and pilot 
production for a wide range of applications.  This growth continued to 
accelerate sharply in the second half of 2017 as a VCSEL product 
development programme moved to mass market production in June.  As a 
result, the Photonics division is on track to achieve approximately 100% 
growth in 2017 over 2016.  IQE believes that it has created a 
sustainable lead in this market by virtue of its intellectual property, 
its ability to scale this complex technology into mass market, and its 
dual-site supply strategy.  This is further underpinned over the next 
few years by several, multi-year supply contracts. 
 
   The InfraRed business enjoys global leadership in the supply of advanced 
antimonide wafer products.  It has a history of delivering steady growth, 
and is on track to deliver growth in 2017 of approximately 10%.  This 
business has historically focussed on advanced "see in the dark" 
technologies in the defence sector, but it is now engaged with major OEM 
and device companies in product development programmes targeting mass 
market consumer applications. 
 
   Wireless sales are expected to be broadly flat year on year, with a 
forex tailwind mitigated by a reduction of inventories downstream.  IQE 
successfully managed this inventory reduction to enable it to focus 
capacity on the rapidly expanding photonics division. This was 
achievable by virtue of its strong Supplier Managed Inventory ("SMI") 
relationships with its customers. These inventory levels will normalise 
in 2018 as we replenish normal SMI levels. 
 
   The Group also generates license income from Joint Ventures.  As 
anticipated, this will reduce from the prior year, which included 
significant upfront amounts. License income is expected to be no more 
than GBP2m for the full year. 
 
   The majority of the Group's revenues are denominated in foreign 
currency.  A forex tailwind of approximately 5% against the prior year 
turned into an approximate 5% headwind in the second half.  However, 
this is largely presentational as the majority of the groups costs are 
also in foreign currency. 
 
   The increase in wafer sales will continue to drive an expansion of wafer 
margins in 2017.  As a result, profit before tax for the Group is 
expected to be ahead of current market expectations.  In particular, 
wafer sales are expected to be materially higher, partially mitigated by 
lower license income.  This margin expansion is after upfront investment 
in overheads to establish the new foundry that will begin operations in 
2018.  Progress with the new foundry is on track, with the first five 
new tools ordered being scheduled for installation in early 2018, and 
generating revenues by mid-year. In addition, the Group has agreed terms 
for a further ten production tools, and is in the process of agreeing 
the specification for the first five of these additional tools. 
 
 
 
   Net funds are expected to be in the range of current market 
expectations. 
 
   As reported in October, a prior year tax liability estimated to be 
GBP4.2m was identified and settled in full.  The Group's tax advisors 
have now completed their review of the tax computations and the tax 
return has been filed.  Whilst there were no indications of any further 
potential omissions, the Board commissioned an international independent 
tax firm to complete a comprehensive review of the Group's tax 
compliance in the UK, the US and Asia.  This review is ongoing and has 
not identified any further unrecorded liabilities.  This review is 
scheduled for completion during Q1 of 2018. 
 
   Additionally, the US Government's much publicised plan to reduce the 
corporation tax rate from 35% to 21%, if passed would have a positive 
long term financial benefit for the IQE group, which has operations in 
the US.  However, if enacted, this change will give rise to an upfront 
non-cash deferred tax charge relating to a reduction in the associated 
deferred tax asset.  The quantum of the potential reduction has not yet 
been evaluated. 
 
   The Group is scheduled to report its full year results for 2017 on 20 
March 2018, and will provide forward looking guidance at that time. 
 
   Dr Drew Nelson, Chief Executive of IQE, said: 
 
   "I'm very pleased to confirm that IQE is on track to achieve record 
financial results in 2017.  The adoption of VCSELs in the mass market 
has been a key revenue driver in the year.  IQE has built a strong and 
sustainable lead in this complex materials technology.  We see VCSEL 
being a long term growth driver for the Group across a diverse range of 
applications including sensing, LIDAR, optical communications, 
industrial heating, machine vision and heat assisted magnetic recording. 
 
   "VCSEL is just one of many advanced materials technologies that IQE has 
developed which will drive continuing growth in the near and mid term. 
IQE has created strong differentiation in the industry through its broad 
portfolio of materials technologies and it ability to scale and supply 
reliably in the mass market.  Combined with our recent fund raising to 
pump prime our expansion, IQE's outlook is for strong, diverse and 
sustainable growth" 
 
   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. 
 
   CONTACTS 
 
   IQE plc [phone] 
 
   Drew Nelson 
 
   Phil Rasmussen 
 
   Chris Meadows 
 
   Canaccord Genuity + 44 (0) 20 7523 8000 
 
   Simon Bridges 
 
   Henry Fitzgerald O'Connor 
 
   Richard Andrews 
 
   Peel Hunt [phone] 
 
   Edward Knight 
 
   Nick Prowting 
 
   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 ('epiwafers') 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, base stations, GPS, and satellite 
communications and optical communications. 
 
   The Group also manufactures advanced optoelectronic and photonic 
components such as semiconductor lasers, vertical cavity surface 
emitting lasers (VCSELs) and optical sensors for a wide range of 
applications including optical storage, thermal imaging, leading-edge 
medical products, pico-projection, finger navigation ultra-high 
brightness LEDs, and high efficiency concentrated 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 across Europe, 
Asia and the USA. The Group also delivers its products and services 
through regional sales offices located in major economic centers 
worldwide. 
 
   This announcement is distributed by Nasdaq Corporate Solutions on behalf 
of Nasdaq Corporate Solutions clients. 
 
   The issuer of this announcement warrants that they are solely 
responsible for the content, accuracy and originality of the information 
contained therein. 
 
   Source: IQE plc via Globenewswire 
 
 
  http://www.iqep.com 
 

(END) Dow Jones Newswires

December 20, 2017 02:00 ET (07:00 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.