2018 ANNUAL RESULTS PRESENTATION. 20 March 2019

Transcription

1 2018 ANNUAL RESULTS PRESENTATION 20 March 2019

2 2018 Business Highlights - 1 A year of significant investment in capacity expansion and site rationalization New mega-foundry in Newport opened and ten reactors delivered and installed Throughput, uniformity and yield all significantly better than expected at the outset of the Newport project and now operating 24/7 from March photonics customers already qualifying the Newport facility on the five reactors already released for qualification; customer audits proceeding well Taiwan expansion will increase dedicated wireless capacity from that site by 40% bringing operational efficiencies Expansion in Massachusetts (GaN) and Milton Keynes infrared will be completed by H Multiple investment in VCSEL qualification programs extends global footprint for 3D sensing. Engagement with c 30 VCSEL chip manufacturers

3 2018 Business Highlights - 2 5G opportunities secured as market interest accelerates Research and Development activity focused on: next generation materials for high performance HBTs; Porous RF switches and Crystalline RF Filters for 5G; next generation VCSELs and diffusers for VCSELs; and infrared materials for high volume consumer markets Option to acquire creo technology and patent protected IP portfolio from Translucent for US$ 5m was completed in September 2018 Milestone 1 st production order of US$ 250k received for DFB edgeemitting lasers using NIL Re-negotiated a long term supply contract with Tier 1 wireless customer extending product range and share Successful recruitment from ARM of Tim Pullen as CFO took up office on 4 th February 2019

4 2018 Financial Highlights Photonics revenues adversely impacted in H by inventory overhang from very successful ramp in H and VCSEL supply chain disruption in Q due to OEM product sales softness and general smartphone market softness Resulted in revenues broadly flat against a currency headwind Business sector revenues for wireless flattered by customer last time buys before the closure of NJ and replenishment wireless of inventory channels Margin contraction due to currency headwind, Newport Foundry pre-production costs, investment in low/zero margin multiple photonics qualification programs and adverse mix of lower margin wireless products Major capex programs absorb cash but progressing to plan and will deliver operational efficiencies and capacity to deliver revenue and margin expansion Cash Conversion from operating profit 106% (2017: 112%). Net cash 20.8m (2017: net cash 45.6m). New $35m RCF facility with HSBC agreed in January 2019

5 2018 Temporary Stall in Revenue growth impacts profitability SALES ( M) Sales EBITDA EBITDA ( M) Building the Platform Diversification *EBITDA has been calculated as earnings before : non-controlling interest, tax, share based payments, finance costs, depreciation of tangible fixed assets, amortisation of intangible fixed assets, loss/(profit) on disposal offixed assets, impairment ofassets, gain on releaseofcontingent deferred consideration, and restructuring and re-organisation costs.. 22-Mar-19 5

6 KPIs - Dashboard Sales ( M) Operating profit ( M) (before exceptional items) Cash from operations ( M) (before exceptional cash flows) FY14 Fy15 FY16 FY17 FY18 0 FY14 FY15 FY16 FY17 FY18 0 FY14 FY15 FY16 FY17 FY18 FD EPS (pence) (before exceptional items) Leverage ( M) Gearing (%) FY14 FY15 FY16 FY17 FY Net debt Deferred consideration FY14 FY15 FY16 FY17 FY FY14 FY15 FY16 FY17 FY18 6

7 2018 Financial Summary millions Revenues Wafers Licensing Adjusted Operating Profit Wafers Licensing Share of JV losses - (2.0) Adjusted Profit Before Tax Adjusted Fully Diluted EPS 3.38p 1.38p Cash Generated from Ops Capital Investment (cash) Net Cash Wafer revenues up 1.2% against a currency headwind of 3.9% Manufacturing revenues up 2.4% No cash based licence income recognised from joint ventures Operating profit impacted by: currency headwind inefficiencies from lower VCSEL production volumes unfavourable mix of lower margin wireless business substantial investment in low/zero margin photonics qualifications Newport Foundry pre-production costs Share of JV losses representing funding into CSDC 106% (2017: 112%) conversion of operating profit in to operating cash flow Significant capital investment in infrastructure and R&D Equity proceeds from Nov 2017 have repaid debt and funding investment programs.

8 2018 Segmental Information - Revenues 22-Mar-19 8 FY 17 FY 18 Revenue % m % m Wireless 60.0% % 97.8 Photonics 31.2% % 43.8 Infra Red 7.9% % 13.1 CMOS++ 0.9% % 1.6 Business Segment Revenue 100% % Licence income from JVs Total Revenue Adjusted operating profit Wireless 14.9% % 11.9 Photonics 38.6% % 11.5 Infra Red 27.5% % 3.4 CMOS++ (1.7) (1.3) Central corporate costs (9.0) (9.4) Business Segment Adjusted Operating Profit (before licencing) 16.2% % 16.0 Wireless revenue increase of 6.6% bolstered by 5m last time GaN buys from NJ and replenishment of wireless inventory Wireless revenues were 62.6% (2017: 60%) of segmental revenues Photonics revenues decreased 3.9m (8.2%) and represented 28% (2017: 31.2%) of segmental revenues Over last two years photonics revenues have increased by 21m (up 92%) representing a CAGR of 39%pa over the two year period Infrared revenues increased by 9.2% to 13.1m (2017: 12.0m) representing 8.4% (2017: 7.9%) of segmental revenues

9 2018 Segmental Information Operating Profit and Margins 22-Mar-19 9 FY 17 FY 18 Revenue % m % m Wireless 60.0% % 97.8 Photonics 31.2% % 43.8 Infra Red 7.9% % 13.1 CMOS++ 0.9% % 1.6 Business Segment Revenue 100% % Licence income from JVs Total Revenue Adjusted operating profit Wireless 14.9% % 11.9 Photonics 38.6% % 11.5 Infra Red 27.5% % 3.4 CMOS++ (1.7) (1.3) Central corporate costs (9.0) (9.5) Business Segment Adjusted Operating Profit (before licencing) 16.2% % 16.0 Wireless margins affected by demand softness and operational inefficiencies as a consequence of reactor conversions due to capacity constraints Growth of our GaN business which has high selling price but high substrate cost reduces margin but not profit/run Photonics margins impacted by Newport Foundry pre-production costs and extensive low margin VCSEL qualifications. Small batch runs and short notice interruption to long run high volume production schedules further reduced photonics margins Infrared margins healthy but slightly down related to changes in mix

10 Adjusted operating profit analysis 'm FY15 FY16 FY17 FY18 Wireless Photonics InfraRed CMOS Wafer sales License income Total revenue Op. profit before central costs Central costs (7.4) (7.9) (9.0) (9.5) Adjusted operating profit Total Margin 17% 17% 17% 10%

11 Extensive Customer Qualifications and Low Throughput (small batches) Erodes Margins Wafer sales and margins 'm Low volume 25% High volume 75% R&D can be customer or Totals for wafers Low volume 22% High volume 78% Totals for wafers Sales Gross margin SG&A (17.3) (20.7) Adj operating profit Elements of GM% - 37% 27% - 30% 24% internally funded Reported gross margin is a blend of small batch and development at low or zero margin and. much better margins in long run volume production Strategy to be agnostic and seamless transfer from large platform machines in to production but can we find better pricing models and improve batch operations

12 2018 Consolidated Cash Flow Statement (1) 22-Mar Cash flows from operating activities: m m Adjusted cash inflow from operations Cash impact of adjustments (1.3) Cash inflow from operations Net interest paid (2.1) Income tax paid (5.8) (0.7) Net cash generated from operating activities Cash flows from investing activities: Purchase of intangible assets (2.4) (1.6) Capitalised development expenditure (14.5) (10.4) Purchase of property, plant and equipment (11.3) (30.4) Net cash used in investing activities (28.2) (42.4) Cash flow from operating activities reflects trading downturn No net interest charges as all borrowings repaid at end of 2017 Cash tax < 1m exceptional tax charge was related to a liability in a US subsidiary arising from an earlier acquisition Full US tax review now satisfactorily completed Cash investment in capex underpins capacity expansion in NP, MA, TW, MK and for product development

13 2018 Consolidated Cash Flow Statement (2) Cash flows from financing activities: m m Proceeds from issue of shares Proceeds from borrowings (27.9) 0.0 Repayments of borrowing (75.4) Net (decrease)/increase in net cash 40.9 (25.3) Net cash at 1 January Exchange gains/losses 5.0 (0.2) Net Cash at 31 December Significant inflow of funds in 2017 from very successful equity raise This was used to repay all borrowings including 6.6m of assets acquired on finance lease in 2017 Net cash at year end of 20.8m Headroom added in January 2019 following agreement of a $35m revolving credit facility with HSBC 22-Mar-19 13

14 Operating Cash Generation v Free Cash Flow 'm FY15 FY16 FY17 FY18 Operating profit Cash conversion rate 119% 110% 117% 106% Operating cash generation Capital investment (10.0) (19.1) (28.2) (42.4) Net cash from trading (25.4) Exceptional (1.6) (1.8) (1.4) 0.0 Interest (1.4) (1.5) (2.1) (0.1) Tax (0.5) (0.8) (5.8) (0.7) Net (before acquisitions & financing) (6.4) (26.1) ROCI (%) 10% 11% 10% 4% We need an operating performance, driven by volume business from all of our business units to support investment cycles and provide positive free cash flow and improved ROCI

15 Capital Investment

16 NEW NEWPORT FOUNDRY WILL DELIVER PRODUCTION EFFICIENCIES CONSIDERABLE PROCESS AND OPERATING KNOWLEDGE GAINED FROM H2 17 VCSEL RAMP WILL BE APPLIED IN NEWPORT FOUNDRY PRODUCTION Increase in number of runs per day Improved wall plug yield (wafers out/substrates in) Better utilization (reduced time between maintenance cycles) And reduced gas usage 30% site capacity improvement 50% increase in contribution/tool Increased ROCI 22-Mar-19 16

17 2018 Adjusted Profit Measures 22-Mar ( m) 2018 ( m) Pre tax Tax Tax Results Pre tax impact impact Results Share based payments (ex PJR) (7.5) 5.4 (2.1) 1.3 (1.9) (0.6) Amortisation of acquired intangibles (1.4) 0.6 (0.8) (0.5) 0.1 (0.4) Patent Dispute legal fees Restructuring: New Jersey Singapore Onerous Lease Death in Service- PJR: Share Based Payments Release NHI/Deferred Tax Net Insurance Proceeds (1.3) (3.3) (4.4) (1.5) (1.9) - (1.1) (2.6) (4.4) (1.5) (0.6) 1.1 Change in US Tax rate - (7.0) (7.0) Other (0.5) 0.1 (0.4) TOTAL (9.4) (0.9) (10.3) (7.2) (2.8) (10.0) Legal fees on a patent dispute were 1.3m The Arbitration hearing on this dispute is scheduled for Q New Jersey closure costs are made up of cash costs of 1.1 m for severance and decommissioning and 2.2 for impairments Onus lease provision was 4.4m providing for the cost of unlet and unused space in Singapore to the end of the lease in 2022 Net costs relating to the death in service of Phillip Rasmussen were 1m after tax

18 Overview of IQE s Markets and Growth Opportunities

19 Global leaders in Compound Semiconductor Wafer Founded in 1988 Global Leaders Listed London (AIM) Market Cap USD1B Global facilides 600 staff Business Units End markets Global Footprint USA Taunton, MA Greensboro, NC Bethlehem, PA Spokane, WA Somerset, NJ EUROPE Newport, UK Cardiff, UK CSC Milton Keynes, UK Bath, UK ASIA Taiwan Singapore CSDC

20 IQE Key Technologies road map 4G 5G Filters/High perf switches/pas (creo) SoC RF GaN GaAs NIL SiGe/ GaAs/ Ge 3D sensing (VCSEL) DFB (NIL) LIDAR DOE WLO (QPC) Machine vision InP GaSb/ InSb Security Space Industrial Consumer/Healthcare Renewables Electric Vehicles Consumer High Altitude UAVs Terrestrial Power GaN SOI Dilute Nitride InGaAs Quasi Photonic Crystal Wafer Bond Epi Metal CS on Silicon creo TM III-V on Si

21 Materials Solution Provider..Increasing IQE share of the value chain

22 Macrotrends Drive Opportunities Connectivity Today s Drivers 4G/LTE evolution Massive MIMO Fiber backhaul Tomorrow s Opportunities 5G & Internet of Things Identification & authentication National and personal security Sensing Energy 3D, proximity & TOF sensing Driver-assistance systems Night vision Vehicle electrification Big data / datacenters Solar-powered UAVs Virtual / augmented reality Autonomous vehicles Wearable health monitoring Chemical & biological threat detection High altitude pseudo-satellites 22-Mar-19 22

23 5G landscape: long-term Smart-city cameras Gigabytes in a second Work & play in the cloud Augmented reality Mission critical broadband Enhanced Mobile Broadband Massive IoT 3D video / 4 & 8K screens Voice/data Low Latency Industrial and vehicular automation Sensors for connected devices Connected autonomous vehicles

24 5G Not Just the Next G Key Technologies: High Frequency Small Cell Massive MIMO Beamforming Full Duplex 22-Mar-19 24

25 5G Opportunity Overview Infrastructure Handset 5G mm-wave Network backbone Fiber fronthaul Hyperscale Datacenters 1000x bandwidth 100x connected devices 22-Mar FTTP

26 IQE 5G Infrastructure Opportunity

27 5G Antenna Arrays Each element has its own T/R 22-Mar-19 27

28 5G Materials Choices Output Power Density GaN GaAs SiGe Si CMOS and SiGe require >10x the number of antenna elements relative to GaN CMOS # of Antenna Elements 22-Mar-19 Source: Analog Devices 28

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30 IQE GaN Industry s Broadest Por<olio GaN / GaN Voltage RaAng 1,200V 600V 200V GaN/Si #1 Merchant Epi Supplier 50V GaN/Si + GaN/SiC GaN / SiC 1kHz 1MHz 1GHz 10GHz Frequency 100GHz 22-Mar-19 30

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32 IQE Photonics Product Portfolio for 5G VCSEL Emitters Detectors Substrates Wafers VCSEL Edge Emitters LW IR Sensors MW IR Sensors VCSEL Visible VCSEL RC LED FP Laser DFB Laser HP Laser Diode MW/LW IR Sensors SW IR Sensors PIN Detectors APD Detectors 5G Hyperscale Datacentres 5G Fibre Front Haul and Backhaul, FTTP

33 Nano-imprint Lithography for DFB lasers iqprint Grating with pitch of ~ 200 nm & width of ~ 80 nm CompoundSemiconductor.net DFB laser full service manufacturing solution Epi growth Grating fabrication

34 IQE 5G Handset Opportunity

35 RF Front End ( ) Market Opportunity 2023 $35B 2017 $15B Source: Yole Developpement, June 2018

36 RF Front End IQE Strategy for Addressable Content (2019 NPIs) IQE Solution Sputtered / epi-metal Epi Al(Sc)N Epi Metal creo Si

37 The anatomy of a VCSEL IQE s epitaxial layers precisely define the characteristics and performance of the components fabricated from its epiwafers The most complex laser device IQE first to market with commercial, 150mm wafers and commands around 90% market share for outsourced VCSEL epiwafers Several hundred atomically engineered epitaxial layers

38 Higher Power VCSEL array applications drive much larger die size Area Increase x10 à x4 à x50 à

39 Android camp. Fast followers IQE in all high end android models IQE retails over 90% of all other non Android 3DSensing in multiple platforms Xaomi Oppo Vivo Huawei IQE retains overall share of > 90% in top four VCSEL manufacturers globally 22-Mar-19 40

40 IQE s Content Growth in Handsets HBT PAs BiHEMT PAs Porous Si Switches HBT PAs HBT PAs Integrated FEM BiHEMT PAs SAW & BAW Filters Proximity sensors 5G mm wave 3D sensors Face recognition Proximity sensors TOF sensors Camera focus Accessory sensors 3D sensors Face recognition 3D sensors World facing / AR 3D sensors World facing / VR TOF sensors Camera focus Integrated optics VCSEL/DOE/WLO 22-Mar-19 43

41 Other IQE Near Term (1-2 years) Opportunities

42 Edge Emitting Laser Epitaxial Products IQE: The leading supplier of edge emi6ng laser epitaxy for almost 30 years Volume produc>on across a range of applica>ons, MOCVD & MBE plaforms 3, 4, 6 GaAs 2, 3, 4,6 InP 2, 3, 4,6 GaSb VCSEL VCSEL development and ramp translates to enhanced capability applicable to EEL Uniformity, thickness and doping control, calibra>on, metrology

43 New Product Roadmap IR Detectors 2-3 InP/GaInAs 3-4 GaSb/InAs IR Lasers 2-3 InP/AlGaInAs 3-4 GaSb/AlGaSb Advanced Materials 2-4 InP/GaSb/InSb/InAs Core Products DEFENCE/SECURITY & LIDAR WEARABLES, BIO & ENVIRONMENTAL SENSING COMPUTING, SENSING, IoT Diversification & Growth Transition to larger diameter wafers (more die/better yield) Production Capacity Expansion IR product integration with silicon Defence/Security è Consumer Adoption of IR laser technology in volume consumer applications Adoption of GaSb detector technology across multiple defence/security platforms Advanced III-V materials demand drives production capacity expansion High Volume 4-6 IR detector and laser growth capability serving >$500m TAM consumer and defence/security markets

44 Healthcare & Wearables Continuous vital signs monitoring Low technology IR sensor Prevention, Diagnosis, Treatment High sensitivity specific & tuneable sensors made possible by compound semiconductors InP/GaSb Epitaxy

45 IQE s Global Manufacturing Strategy

46 Global Manufacturing Strategy Global Footprint Investment concentrated on three key sites covering each major global region (EU, NA, Asia) Newport UK Flagship Photonics EpiFoundry Future products to include GaN, IR, Solar, SiPh Taunton MA Flagship GaN Epifoundry, plus wireless, photonics Hsinchu, Taiwan Flagship wireless EpiFoundry, plus Photonics, NIL USA EUROPE ASIA Greensboro, NC MBE EpiFoundry (wireless, IR, creo, photonics) Taunton, MA Greensboro, NC Spokane, WA Bethlehem, PA Somerset, NJ Newport, UK Cardiff, UK CSC Milton Keynes, UK Bath, UK Taiwan Singapore CSDC Milton Keynes/Spokane/Bethlehem InSb, GaSb, InP substrates and epi Bath, UK closed Somerset NJ, will close Dec Annual savings usd4m pa

47 Newport Mega Foundry

48 Investing for growth: Newport foundry Phase 1 Current Status 7 tools in production ready state In active qualification with 12 major chip manufacturers Outstanding wafer quality, Improved throughput, lower materials usage, reduced maintenance Passed 5 major customer audits in last two months Production release for largest customer expected by end Q1 based on chip performance, reliability data and audit clearance

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50 Looking Forward Tim Pullen CFO

51 Half-way through my first 90 days Tech Background Strength Opportunity Scaling

52 IQE has an Expanding Opportunity Key Revenue Drivers o Connected Devices / IoT o Expansion of use cases o Device proliferation o Customer diversification o Integration & miniaturisation o 5G o Mega Replacement Cycle o Higher speed & frequencies = higher share for compound semiconductors o Handsets o Infrastructure Key Profit Drivers o Maturity and complexity of Technology o Level of QualificaGon work o ProducGon Run Length o Access to Capacity o ProducGon yield

53 We have been investing in capacity to capitalise on this opportunity Investment in Capacity 40m Capacity Constraints Photonics Opportunity evident 30m 15m Capacity installed by end of 2019 can meet 2020 revenue guidance requirements Optionality to flex investment if future revenue streams are higher FY16 FY17 FY18 FY19 FY20 Newport Epi Foundry & Reactors Taiwan and MA Expansion Other Capex

54 We expect our performance in 2019 to accelerate through the year 2019 First Half Second Half Market Production Operations o Photonics Supply Chain inventory corrections complete in Q1 o General handset and semiconductor market softness o Photonics production ramp from Q2 o Closure of NJ US complete o Capacity expansions completing (Taiwan, MA US) o Multiple Newport epi-foundry qualifications o Photonics diversification opportunities for Q4 o Green shoots of market recovery with a significant 5G driver becoming evident o Continued Photonics production ramp in Q3 o Increasing production yields o Ongoing site review and optimisation

55 2019 Revenue Guidance (constant currency) > 50% YoY ~(15%) YoY ~+ 15% YoY Total Revenue ~+ 9% YoY 40% H1 60% H2-10 % YoY +26% YoY

56 Future Revenue Growth Potential (constant currency) to 5 Year View Return to growth Con8nued high growth Growing consistently 0 to 20% CAGR 40% CAGR 5 to 15% CAGR

57 Guidance Summary Revenue Group Adjusted Operating Margin Photonics >50% YoY Wireless ~-15% Infra Red ~+15% Year View Over 10% Continued high growth in Photonics Wireless return to growth Consistent Infra Red growth Photonics 40% CAGR Wireless 0 to 20% CAGR Infra Red 5 to 15% CAGR Margins expected to increase over the medium term as revenues and production yields increase Capex ~ 40m ~ 15m In line with business opportunity Capitalisation of Development Costs Tax Effective Tax Rate ~18% Cash Tax ~ 1-2m ~ 10-15m per annum N/A