IQE plc Full Year 2019 Results Presentation
Disclaimer This presentation has been prepared by IQE plc solely for information purposes and should not be considered to be an offer or solicitation to buy, sell or subscribe for any securities, financial instruments or any rights attaching to such securities or financial instruments. In particular, this presentation does not constitute an offer to sell, or the solicitation of an offer to acquire or subscribe for, securities in any jurisdiction where such offer or solicitation is unlawful. This presentation is not comprehensive and does not contain all of the information material to an investor. This presentation may contain forward-looking statements. Forward-looking statements can be identified as anything other than statements of historical fact contained in this presentation and by their nature are subject to uncertainty and risks. Forward-looking statements are statements regarding our intent, belief or current expectations and are not guarantees of future performance. Actual performance and results may differ materially from those described in this presentation. Readers are cautioned not to place undue reliance on these forward-looking statements. This presentation is directed only at (i) persons outside the United Kingdom to whom it is lawful to communicate it, or (ii) persons having professional experience in matters relating to investments who fall within the definition "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order"), or (iii) high net worth companies, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) of the Order and any other persons who fall within other applicable exemptions under the Order, provided that in the case of persons falling into categories (ii) and (iii), the communication is directed only at persons who are also "qualified investors" as defined in Section 86 of the Financial Services and Markets Act 2000 (together, "Relevant Persons"). Any investment or investment activity to which this presentation relates is available only to, and will be engaged in only with, Relevant Persons. This Presentation must not be acted on or relied on by persons who are not Relevant Persons. You represent and agree that you are a Relevant Person. This presentation is not directed to nor intended for distribution or use by any person or entity, in any jurisdiction where to do so would constitute a violation of the relevant laws of that jurisdiction. The information contained in this presentation is provided as at the date of presentation and is subject to change without notice. Whilst the presentation has been prepared in good faith, no representation or warranty, express or implied, is give by IQE plc or its representatives as to the accuracy or completeness off the information or opinions in the presentation. IQE plc and its representatives shall have no liability whatsoever, whether under contract, tort, trust or otherwise, to you or any other person resulting from the use of, or reliance on, any information in this presentation. Any dispute, action or other proceeding relating to this presentation shall be adjudicated within the exclusive jurisdiction of the courts of England. All material in this presentation shall be governed by the laws of England and Wales. FY 2019 Results – 28 th April 2020 1
Introduction Drew Nelson, CEO
Introduction Positioned for short-term resilience and long-term growth o Following FCA/FRC guidance due to the general uncertainty created by the ongoing Coronavirus pandemic, IQE’s results announcement was postponed. On 24 March 2020 we disclosed unaudited summary financials, and today we disclose audited full year results for 2019 in line with our March Trading Update. o At IQE our principle concern remains the health and safety of our staff and their families. o Currently all of our production sites around the globe remain operational, we have implemented appropriate safety measures and are operating with the support of national governments, although there remains an increased risk of business disruption. o Q1 2020 trading was slightly higher than expectations and the outlook for Q2 2020 remains positive. There is an increased risk to near-term demand from a global recession. o Total debt facilities of £57m put in place during 2019. Positive Q1 2020 trading means net debt reduced versus 31 Dec 2019 position of £16m. o Long-standing and trusted relationship with HSBC, with regular communication. HSBC agreed to formally relax debt covenant tests at Dec-20 and Jun-21, ensuring continued access to credit in event of severe downside. 3 FY 2019 Results – 28 th April 2020
FY 2019 Financial Results Tim Pullen, CFO
Summary Financials £’million FY 2019 FY 2018 Previously reported in the Revenues 140.0 156.3 * * March Trading Update and Adjusted EBITDA 1 16.2 26.4 * now disclosed as audited Adjusted operating profit / (loss) (4.7) 16.0 financials. * Reported operating profit / (loss) (18.8) 8.7 Reported PAT (35.1) 1.2 16.5 17.0 Net Cashflow from Operations (Adjusted) * Net Cashflow from Operations (Reported) 8.9 17.0 Capital expenditure 2 31.9 30.4 * Net cash / (debt) 3 (16.0) 20.8 * Cash and cash equivalents 8.8 20.8 Adjusted fully diluted EPS (2.46p) 1.38p 1 Adjusted performance measures exclude the impact of certain non-cash charges and one-off or non-operational items fully disclosed in the Accounts 2 Capex stated is Property Plant and Equipment cash capex 3 Net cash / (debt) is defined as borrowings less cash but excluding lease liabilities FY 2019 Results – 28 April 2020 5
Financial Performance Recap of position reported in March 2020 Trading Update Revenue £’m Adjusted EBITDA £’m Adjusted Operating Profit £’m 37 32 27 156 29 155 140 133 26 22 19 114 16 16 (5) FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 Loss from operations in line with Revenue down 10% YoY Adj EBITDA reduced due to high expectations operating leverage • £140m revenue in line with November • £4.7m Adj operating loss in line with Trading Update (£136m to £142m) • £16.2m EBITDA November Trading Update (“mid -single-digit • FX tailwind of £6m • Year-on-year reduction resulting from lower operating loss”) revenues and the costs associated with • Year-on-year reduction primarily as a result increased capacity of two key customers: ‒ Wireless customer affected by changes in Global Markets ‒ Photonics customer affected by technical issues independent of IQE FY 2019 Results – 28 th April 2020 6
Capex, Cashflow and Net Debt Recap of position reported in March 2020 Trading Update Adjusted Operating Cashflow Capex Cashflows £’m Net Debt £’m £’m £32m £30m 46 £11m 21 £11m 31 24 23 (16) (23) 17 17 FY16 FY17 FY18 FY19 (40) Other Expansion Asset Finance FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 • Cash capex of £32 million at the lower end of • £16.0m at lower end of November Trading • £16.5m cash from operations before the 2019 guidance of £30 – £40 million Update guidance (£15-20m) exceptional items • Expansion capex makes up £29.3m (92%) of • Access to material debt facilities (increased to • 100% Adj EBITDA cash conversion cash capex in FY19 c£57m during FY19) • Underlying cash capex has consistently • IQE will continue to evaluate actions to reduced year on year since FY16 balance the preservation of cash with the longer term investment needs of the business • In addition, £10.2 million of R&D and acquired intangibles capitalised in FY 2019 (£12m in FY18) 7 FY 2019 Results – 28 th April 2020
Reconciliation of Adjusted to Reported Loss £’million FY19 £m Explanation Adjusted Operating Loss (4.7) Exceptional legal costs (4.3) An arbitration hearing was held in September 2019. Whilst the specific findings of the Arbitral Tribunal remain confidential, the Tribunal’s ruling was entirely in IQE’s favour but the associated court case is ongoing. Impairment of CSC preference shares * (4.1) Re-forecasted business plan which shifts revenue to the right and reduces returns in the context of current technology markets and the R&D funding landscape post Brexit (refer to appendix slide 24). Discontinuation of certain non-revenue earning R&D investments (£2m) and patents (£0.7m) Impairment of intangible assets * (3.8) under the governance of IQE’s New Product Introduction process. Legacy IT development costs (£1.1m) written down as IT systems are transformed. (1.6) Arising from the acquisition of the Group’s Singapore JV (refer to appendix slide 22). Write down of CSDC right of use asset * Minor restructuring undertaken in FY19 to re-size cost base in the context of demand. (0.8) Restructuring costs Includes £0.8m share based payments credit. 0.5 Other items Reported Operating Loss (18.8) Recognised within share of JV losses resulting in total CSC pref shares write down of £8.1m (refer Loss absorption charge * (4.0) to appendix slide 24). Write down based on assessment of future US cashflows in context of changes in global markets. US deferred tax asset write downs * (9.6) Includes share of Singapore JV losses (pre-acquisition), interest charges and other tax items. Other items (2.7) Reported Loss after tax (35.1) FY 2019 Results – 28 April 2020 8 8 * Non-cash items
Business Update Drew Nelson, CEO
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