Good morning, everyone. I'm delighted to be here with our CFO, Jutta Meier, to talk you through IQE H1 results. I would like to start off with a top-line summary of the business and market dynamics that influenced the period before handing over to Jutta to talk through the financials, and then I will walk you through some of our strategic priorities looking forward. Let's start with the market update. The fiscal year 2023 results, we spoke about the recovery we saw in the H2. This trend had continued in the H1 of 2024, and the industry has seen more variability than expected across regions and market segments, which has led to the pace of growth being more moderate than some forecast.
This is what our peers across the industries have seen as certain sectors recover at different pace and economic headwinds impacting consumer demand in some key end market. This is demonstrated by our set of results with a strong performance in wireless, while the photonic market has been flat. Overall, we are confident that the industry recovery will continue, but expect its pace to be impacted by the variability throughout the H2 of this year. I'm pleased to report that IQE delivered a consistent performance in the H1 of 2024. We saw headline revenue growth of 27% year-on-year to GBP 66 million, with Adjusted EBITDA of GBP 6.6 million, which saw the business deliver a swing of GBP 12.3 million from a loss to a positive on the year-on-year basis.
This is reflected by our growing presence in the Android ecosystem for wireless, which we will come to talk about as part of our segment breakdown later. Let me now hand over to Jutta to run you through the detailed financials for the H1.
Thank you, Americo. Good morning, everyone, and thank you for joining us on our H1 2024 results webcast. I'd like to first provide some details on the segmental revenue. Wireless division performed well. The 73% year-over-year increase is driven by market recovery and supported by design wins that reflect our increasing strategic penetration into the Android ecosystem. The Photonics division is indicative of the variable pace and patchiness of recovery in the market, as Americo touched on earlier. While pixel demand for data centers was strong, other areas have failed to demonstrate the same level of recovery, resulting in overall revenue being down slightly year-on-year. The CMOS division reflects our intentional strategic rebalancing of our portfolio as we focus on higher growth markets. As a result of this, we are deprioritizing the division and will no longer be reporting separately on it from next year.
Now, let me go through the financial highlights. Revenue, the H1 revenue of $66 million is up $14 million or 27%, and is in line with our provided market guidance and reflects the continuation of recovery as highlighted by Americo earlier. On a constant currency basis, which takes into account that the majority of our revenue is earned in US dollars, revenue is up 53%, a $1.6 million exchange rate tailwind. On to Adjusted EBITDA. A significant year-over-year improvement in profitability reflected in the $12.3 million increase of adjusted earnings before interest, tax, depreciation, and amortization from an adjusted loss of $5.7 million to an adjusted EBITDA of $6.6 million, is driven by a combination of factors.
First of all, we see a higher utilization and improved optimization of the group's manufacturing capacity compared to the H1 in 2023, due to increased customer demand and inventory management. Secondly, we see a favorable impact of structural cost improvements both in operations as well as SG&A and support functions. This adjusted EBITDA excludes the impact of certain restructuring costs, costs associated with executive director changes, and share-based payment costs. Onto EBIT. Non-cash depreciation and amortization charges of GBP 13.8 million lead to an adjusted loss before interest and tax of GBP 7.2 million, an improvement of GBP 10.2 million compared to H1 2023. The resulting operating cash flow number seems counterintuitive to the results reflected in the other metrics. Let me therefore take you through the details of the various components in the next slide to better paint the picture.
We started the year with a net debt balance of GBP 2.2 million. Cash flow for operations of GBP 10.2 million is GBP 15.6 million favorable to prior year, which reflected a GBP 5.4 million outflow, and this increase is reflecting a combination of improved sales volumes and the favorable impact of previously implemented cost mitigation actions. This is partially offset by a working capital outflow of GBP 8.4 million, which is adverse to prior year, in which we saw a GBP 9.7 million inflow. The working capital outflow reflects a combination of factors. As the market recovers, our working capital requirements have also increased to reflect higher trading volumes and the significant increase in trade and other receivables linked to manufactured customer wafers that have either not yet been shipped or are held in supplier-managed inventory.
The GBP 4.4 million cash impact of adjusted items mainly reflects certain restructuring costs related to the Pennsylvania site closure, while the proceeds of the actual site sale are still outstanding. Other factors include costs associated with executive director changes and share-based payment costs. We closed the year with a net debt balance of GBP 17 million. Cash and cash equivalent balance for the half year is GBP 7.8 million. Now let me cover our cost initiatives. Since I joined, we have looked into implement tighter cost control initiatives and ensure improved operational efficiency and fiscal responsibility. We talked through a number of these priorities at the full year, but I'm pleased to say that we've made further progress in H1. This has included delivering on our headcount and non-labor cost reduction program initiated in fiscal year 2023.
On top of this, we are confident that we will complete the sale of the decommissioned Pennsylvania site in H2, 2024 . Looking ahead, these priorities remain in place as we continue to navigate the full market recovery and improve the margin. And with that, I will now hand back to Americo to take us through our strategic priorities and the outlook.
Thank you. Thank you, Jutta. Before we get into some of the details of our strategic priorities, let me remind you of our strategy as such. It's all about driving growth through diversification into high-value power market and micro LED displays, while maintaining our strong position in wireless and photonics. We have made great progress in the H1 of this year. For GaN power, we have increased capacity that is enabling qualification ramp-up for Tier One OEM for 650-volt product. We have a strong roadmap in GaN power, ranging from 1200-volt device up to 1250, expanding our market opportunities to serve from the data center market to the EV market, including on-board charging type of products.
In MicroLED display, we continue to demonstrate our capability, which is driving increased sampling with new and existing customers with our full spectrum of RGB technology. We have a highly differentiated eight-inch product portfolio addressing a range of display and end market, from small to large device form factors, with the key driver being AR/VR platform, which is providing a new platform qualification opportunities for IQE. Across wireless, we maintain our market share with our existing customers while expanding into new design wins for Android smartphones and Wi-Fi 7 end markets. And for photonics, we are well positioned to capture the demand from the trends associated with GenAI, which I'm going to provide more details in a moment. As we announced at our Capital Market Day, a core part of our diversification strategy is expanding into GaN power market. So we have made progress addressing that strategic imperatives.
Leveraging our GaN innovation, which begins laying the groundwork to deliver. Firstly, we have successfully invested, as you know, into GaN capacity across multiple sites. This is very important to cope with the supply security necessary in our industry. This has enabled us to deploy capacity to accelerate our R&D program across a range of voltage required by key growth markets for consumer electronics and industrial use cases. One of the trends we are seeing from across the industry is more investment moving into compound manufacturing, and GaN in particular, including investment from large silicon foundries, IDMs and OEMs. IQE is not alone, and I'm very pleased to see that what we have announced at the CMD is being followed by multiple large players in the industry. The power demand for GenAI requires new technology, and we see this as an inflection point for the industry.
It is said that Gen AI data centers may require up to 10x the power budget, and I don't think it's realistic to expect to create 10x power generation. So therefore, there is a call for a new innovation pipeline of technologies to address this challenge. IQE is focused on engaging with a set of new customers to enable this transition as the industry prepares to scale up to meet the anticipated demand for Gen AI workloads. Following our successful internal development in collaboration with key partners, we are already sampling with a number of customers with very positive feedback, reflecting our strong capabilities and our highly differentiated product portfolio. All of this gives us confidence in our exposure to where we see the growth opportunities in those key end markets, including automotive, communication, infrastructure, and data center, that power the Gen AI revolution.
I would like to focus more on the AI market in a little bit more depth. To recap on what we have said previously, Gen AI represents a significant growth opportunity for IQE technology. Our technology portfolio is already present across the whole AI ecosystem, from the palm of your hand to a network that transports the data to data centers themselves. Turning first to Edge AI. We expect Edge AI to be a significant driver for growth in the near future as the industry deploys Gen AI models in smartphones and other IoT-type devices. The latest upgrade cycle of AI-enabled devices will require advanced sensing capabilities, our 3D sensing technology delivering much richer, more immersive user experience, as well as wireless connectivity and efficient power management through GaN. All three are key parts of IQE portfolio.
Now, let's look at the data centers, where GenAI will drive tremendous demand on increased power and data traffic. As I said earlier, adding more power plant may not solve the problem. Therefore, we believe GaN power is a critical technology to help cope with such an increase in demand. To help deliver the full potential of GenAI, there's a need for new technology to deliver faster data transfer at a much lower rate of power consumption. This is an area that we are particularly excited about in relation to our quantum dot laser product portfolio, which is able to deliver faster data transfer with a much lower energy footprint while being more cost-effective for our customers. In this technology, we are engaged with a number of key players to take it to the marketplace. Now, let's look at indium phosphide.
We continue to see solid demand for this technology across the ecosystem, particularly for ultra-low latency, high bandwidth data center applications. Our indium phosphide technology has also unlocked new opportunities in consumer sensing. Our laser and detector materials are being used to develop new intelligent health and wellness products. Underpinning all this, though, is our belief that our GaN power portfolio is a viable and sustainable solution to cover the power demand required for Gen AI infrastructure from edge to the core of the network. So I have to talk about the market dynamic and our strategy for growth. Now, I would like to take a moment to explain how our proposed IPO of IQE Taiwan will enable us to accelerate the implementation of our strategy.
As announced in July, we intend to list IQE Taiwan on the Taiwan Stock Exchange, selling a minority holding in the business while retaining control. Minimum is 30%, and we anticipate the selling in the range of 30%-40%. This will enable us to leverage the strategic value of this asset and accelerate the investment in our growth, accelerate our R&D effort, expand our capacity, and provide additional cash resources to the company while we continue to offer a secure and resilient supply chain for our global customers. This IPO process is a two-stage process, with the initial phase of listing is expected to be complete in the H1 of 2025 . As we announced, we have appointed Taishin Securities as lead underwriter to take us through the process.
I know that everyone would want to know, want us to comment on the valuation of the business, but we are not in the position to provide this level of detail at this stage. However, we are really encouraged by the valuation of our peer group on the Taiwan Stock Exchange, who, as a group, are looking at valuation greater than 30x PS. I was in Taiwan a few weeks ago, and I have been really encouraged by the initial feedback so far from potential strategic investors, and I look forward to updating you in due course. To conclude, I want to recap on our outlook for the rest of the year. Year-on-year growth is expected in revenue and Adjusted EBITDA. But due to the pace of the industry recovery, both measures are anticipated to remain at the lower end of the earliest forecast for 2024 .
The proposed IPO of IQE Taiwan is an exciting opportunity, enabling us to accelerate the implementation of our strategy. We remain committed to our diversification strategy for growth as we see the role of compound semiconductors becoming even more critical, and the sector attract more investment as we reach an inflection point, driven by the demand of GenAI. But it's also important to note that compound semis are critical to our digital infrastructure as a whole, and that IQE is poised to enable an intelligent, connected, and low-carbon world. I would like to finish by thanking everyone in IQE for their hard work during the H1, and with that, I'll hand it over to the operator for questions. Thank you so much for your time.
Thank you. Ladies and gentlemen, if you would like to ask a question over the conference call, please signal by pressing star one on your telephone keypad. Once again, that is star one for your questions today. We will pause for a brief moment. Once again, that is star one for telephone questions. There appears to be no telephone questions at the moment, so I'd like to hand over to Chloe for any questions via the webcast.
Thank you so much. We have a few questions from the webcast. The first question is: Is IQE still the global leader in the supply of compound semiconductors?
Yes, IQE is still the global leader, and we intend to continue to lead in this industry. As I said, it is a very critical industry for the future of the digital infrastructure as a whole, and obviously, we have to navigate the market up and down, but we remain very strong in our core technology. With our global footprint, we offer a secure and resilient supply to our customers, and we have the capabilities to scale, so yes, we are still the global leader.
Thank you. The next question is: What is the wider investment community missing when it comes to IQE's potential?
Very good question. Hard to answer because I'm not really an expert in stock market, but again, when I look at other market, I refer to Taiwan in my presentation with regard to IQE Taiwan listing. The market there kind of understand better the technology of sector, and I think, you know, we're gonna work really hard to deliver better and better business performance, then the market will do what the market does.
The next question is, IQE, IQE mentioned they have ordered new GaN reactors about a year ago. When do you expect these tools to be up and running and delivering revenue?
Good question. We have announced, yes, that we have acquired GaN reactors in line with our strategy. We have installed those reactors in the U.S. and in the U.K., and we are sampling to customers, and those reactors are generating revenue as we speak, but also allowing us to continue our R&D investment for both GaN power and micro LED technologies.
Thank you. What is IQE's potential to improve gross margin in percentage?
Yeah, we continue hard and Jutta is really, you know, has joined us and very strong at helping us manage costs. I'll hand it over to her in a minute, but from my perspective, we need to look at two vectors. We have tactical actions we can take, but also structural actions. Since I joined, we have continued to optimize our manufacturing footprint. We have closed our Singapore site, we have closed Pennsylvania site, consolidated MBE into North Carolina, and we continuously look for ways to optimize our manufacturing footprint and to take cost out of the operations. This is one, and also we continuously look at how we can do things more efficiently and manage our headcount cost in a more diligent way. Jutta, anything you want to add?
Yeah. Thank you, Americo. The only thing that we'd like to amplify here, obviously, as we're looking at the structural costs, the main lever in the semiconductor industry that you can pull really to improve profitability is increase in loadings and in volume. So obviously, as we are ramping up our production and really are continuing our march towards the recovery, we will see these scaling impacts really coming through and significantly improve our profitability accordingly.
Thank you. Given the ongoing market recovery, do you expect to hit 2022 revenue numbers of GBP 167 million in the full year of 2025?
We will provide next year guidance in due course. At the moment, we are not commenting on 2025 revenue yet.
When do you expect Micro LED to be a major growth trend? Would you agree it's been pushed back to the end of the decade?
MicroLED is one of those growth market that requires significant amount of investment, and it is true that it has been pushed out a little bit, but again, a lot of it is linked to technology readiness, and at IQE, we know the market is gonna happen. We are locked into the global ecosystem. We have a healthy customer pipeline ranging from small form factor to large form factor, from the U.S. to Asia customers, so we have a very large customer pipeline in MicroLEDs. We are getting our technology ready, and to be honest, the market plan also depends on the readiness of the ecosystem itself, so we're gonna work really hard. We know epitaxy is one of the most critical phase of the entire ecosystem for MicroLEDs.
We wanna make sure that we provide the best MicroLED wafer technology to the ecosystem and to the output, to our end customers, and that would help accelerate the volume ramp of these products.
Thank you. What do you expect the single largest driver of the next three years?
With the ramp of GaN power electronics. We have seen several large companies recently, pretty much saying what we have said at the CMD, being extra on the tools, being some of the silicon foundries that are investing heavily into GaN technology. We, at IQE, would like to make sure that we have the best possible GaN power epitaxy offering. And with our large manufacturing and our global footprint, we wanna make sure that we can serve the global market, being US, Europe, Asia, so that no end customers being foundry, being ODM-OEM, being fabless, see the need to build an epitaxy wafer fab for GaN power. So we have scale, we have supply security, we have technology, and we believe that's one of the largest growth market ahead of us.
Thank you. Can you walk us through the cash position in more detail? Does working capital unwind in H2?
Working capital, as described, is a reflection of our effort to look at the increased volumes that we are seeing. That also means that we are maximizing our ability to load the factories accordingly, with a combination of certain volumes. And that means that we are increasing the inventory, and thus, that means the working capital is increased. Right now, we are seeing these volumes to continue, so that means that we're potentially not seeing any significant decreases in working capital, but we are managing that very tightly and closely to ensure these efficiencies remain, and we are not running into any issues with that.
How do you view business opportunities in China?
Interesting question. China is obviously a very large market, and we, as a global player, intend to capture our opportunities in the China market. We are working with several customers through our Taiwan and global infrastructure to serve our customers in the China market with our technology. We do not have manufacturing in China, nor do we plan to, but we have a global footprint today that allow us to serve the market in China.
What was the feedback from potential strategic investors in Taiwan? What do they see as the opportunity from a technology perspective, and what are they worried about?
They see our strategy as a very good strategy in the business. The fact that IQE PLC remains the majority shareholder, give them confidence that IQE Taiwan has a backing of a leader in the industry. And frankly, our IQE Taiwan operation has been in Taiwan for a long time, serving the global market, and we have demonstrated our capabilities in technology innovation, in execution, et cetera. So the investors, they see this as a fantastic opportunity to just join this IPO.
Do you think you can get customers to support some of the capital burden in the ramp up?
We have said since the CMD that, capital investment for high volume growth will be a joint effort with our customers and potentially public-private partnership. So we have been in conversation with our customers, and that has always been at the forefront. So we will not fund capacity expansion on our own, except what we needed to do to seed the market with R&D activities and product qualification. We are also in conversation with the CHIPS Act, with the CHIPS Office in the United States. We have submitted our application in summer, and we are in active conversations with them to make sure that we also get benefit from the CHIPS Act in the U.S., as we see the CHIPS Office has begin to release the next wave of funding to companies in our sector.
I'm really encouraged with the level of conversation and interaction we have had at the CHIPS Office. That's also helping us to fund our growth.
Can you remind us what the 650-volt E-mode GaN is about, and how that differs from any other GaN power technology that's being talked about out there in the market?
So GaN technology is a technology that is very, very efficient for power management because it is very effective at operating at high voltage and higher switching speed. So 650- volt is what our customers have requested in the first place for automotive market. But obviously, we have a roadmap that is very, very large and comprehensive, going from a few hundred volts, as I said earlier, for data centers, all the way to 1250 volts for automotive segment.
GlobalFoundries acquired GaN power technology. How relevant is this or not to IQE? Does GlobalFoundries have epi expertise, for example?
It is part of what I was saying earlier, where new companies are coming to the GaN investment community, and I'm very pleased to see, you know, large players like GlobalFoundries, where I work myself, is coming into the GaN with a very strong message and very strong commitment in technology. I believe what they are looking at is device-level technologies, and obviously, we would be very pleased to be part of that ecosystem from the epitaxy foundry perspective. But it's a very encouraging piece of news as more and more companies continue to invest in GaN power and continue to reiterate the potential of this market.
Can you comment on where you are at with the CHIPS Act funding, and if there is a timeline for that?
I just answered that question. Those. They don't give us a timeline. They have a process that they run through for every application. What is really encouraging is the level of conversation we are having with them and the level of interaction, which gives me confidence that our application has caught their interest, and we will see how fast we go through the due diligence with the CHIPS Office. But again, it's important to remind our shareholders how critical IQE is to the supply chain in the United States national security industry, on top of our consumer segment. So we are well known to the ecosystem in the U.S.
Is there an indication of how much cash you might get from the sale of the Pennsylvania site?
We are working with various interested parties. And obviously, that remains. These kind of negotiations are not going to be talked about. But we are confident that it'll be a level that we are going to be quite happy with.
Please, could you clarify your comments on peer group valuations in relation to the Taiwan IPO?
Obviously, as I said, we have hired a lead underwriter, Taishin, who is leading the process. Like any process, one has to go look at, in that market, who IQE can be compared to. Really, when we look at the companies like VPEC, Landmark, Win Semi, et cetera, that are in the compound space that represent a peer group, that IQE Taiwan would be compared to.
Please, could you update on the progress of outsourced contract awards?
So we do not comment on customer engagement, but we try to give as much information as we can in a balanced way. As I said, we continue our qualification process with customers. We have a very healthy customer pipeline, and we need to work through the process of negotiations and product readiness, et cetera, with customers. We will make announcement in due course as we work through this process with our customers.
Please talk us through average selling prices and how you were able to influence these or not in H1?
It is, it's important question. We always try to find ways to maximize the value of what we do and to capture the value of what we... Right? So ASP is one element. As we look at throughout the market, we continue to uplift our price wherever we can, in relationship with our customers, and we also see we are operating in an inflationary environment, and that help us have some constructive conversation with customers. But we also see some supply chain risk in compound materials. One may notice that China has continued to impose restrictions on compound materials export out of China. It started with gallium, now it's antimony. So that is also another factor that we use to kind of reset the value of what we do with customers.
Thank you so much. That's all we have time for in terms of Q and A this morning. Thank you, everyone, for joining.
Thank you so much, everybody.
Thank you.