REG-IQE plc : 2017 Pre-close Full Year Trading Update <Origin Href="QuoteRef">IQE.L</Origin>

IqeAnnouncement

20/12/2017 07:05

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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  £150m 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 £2m 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 £4.2m 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 +44 (0) 29 2083 9400 
 Drew Nelson 
 Phil Rasmussen 
 Chris Meadows 

Canaccord Genuity + 44 (0) 20 7523 8000 
 Simon Bridges 
 Henry Fitzgerald O'Connor
 Richard Andrews

Peel Hunt +44 (0) 20 7418 8900
 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