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25 January 2019

IQE reduces 2018 guidance for revenue from £160m to £156m and for adjusted EBITDA from £31m to £27.5m

In a post-close trading update for 2018, epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK says that it expects to deliver revenue of not less than £156m, up slightly on 2017’s £154.5m but reduced from the revised guidance of about £160m given in mid-November. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) should be at least £27.5m, down from £37m in 2017 and reduced from mid-November’s guidance of about £31m.

“It is of course very disappointing that a substantial inventory correction in the first half of 2018 and the sudden disruption in a significant supply chain and short-term demand for VCSEL (vertical-cavity surface-emitting laser) wafers in November materially impacted our expected 2018 revenues and profitability,” comments chief executive Dr Drew Nelson.

Net cash has fallen from £45.6m at the end of 2017 to £20.8m at the end of 2018. On 24 January, the firm agreed a new $35m multi-currency revolving credit facility (provided by HSBC Bank and secured over the assets of IQE) with a three-year term and an interest rate margin of 1.45-1.95% per annum over LIBOR on any drawn balances. The facility is undrawn.

As previously announced, IQE is closing its facility in New Jersey in order to consolidate its US-based gallium nitride (GaN) manufacturing capacity in its existing Massachusetts facility. The cost of the NJ closure (as an exceptional charge in the 2018 accounts) is estimated to be £3.35m (£1.2m in cash costs of severance and reactor decommissioning, and £2.15m in non-cash impairments). Following the closure, IQE expects to achieve annual operating cost savings of about £3m per annum.

IQE also expects to incur an additional exceptional charge of about £4.5m relating to an onerous lease accounting provision, for the period through to the end of the lease in second-quarter 2022, for the unused and unlet space in its Singapore facility. This exceptional provision has no cash impact.

“The position and prospects of IQE will not be defined by our 2018 financial results, which were delivered with none of the benefits of the investment programs which are now nearing completion,” says Nelson.

“By the end of first-half 2019 we will have completed a significant two-year investment program across our global operations, commissioning our new mega-foundry in Newport [Wales] which is dedicated to photonics, installing additional wireless capacity in Taiwan, expanding our GaN capacity in Massachusetts and Infrared capacity in Milton Keynes [UK]. In addition, we have made a considerable investment in engaging with more than 25 VCSEL chip companies, underscoring IQE’s exceptional leadership position in the emerging VCSEL supply chains based on our technical excellence, proven ability to ramp and dedicated commitment to install capacity. We will bring additional photonics capacity into production in Phase 1 (first 10 reactors) in the new Newport foundry during first-hallf 2019, with 12 companies already actively qualifying the new facility,” Nelson continues.

“The investment we have made in rationalization, capacity and new products and the opportunity that this has created will deliver strong performance across our wireless, photonics and infrared business units in the key sector areas of sensing, connectivity and energy, leading to margin expansion, increasing free cash flow and profitability in 2019 and beyond,” believes Nelson.
IQE hence reiterates its 2019 and longer-term guidance. The firm will issue its full year-end results on 20 March.

See related items:

IQE reduces 2018 Photonics wafer revenue guidance from 35-50% to 11% after VCSEL-making customer cuts guidance

IQE's record full-year 2017 results driven by adoption of VCSEL technology in mass-market consumer applications

Tags:  IQE

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