Good morning, everyone, and thank you for joining us for the presentation of IQE's results for the six months ended 30th June 2025. My name is Mark Cubitt, Executive Chair. Before we go through the H1 results, as you may know, we are considered to be in an offer period at the moment and therefore are restricted in what we can say by the Takeover Panel. As a result, there will not be a Q&A session following the presentation today. Now let's turn to the presentation, and first I'd like to start by giving an update on the progress of the group's strategic review. As we announced on 8th September, IQE has made the decision to expand the scope of the ongoing strategic review to incorporate the potential sale of the company as a whole.
We confirmed at the time that we were already in receipt of an approach from a potential offer, and I am pleased to say that we have had additional early-stage expressions of interest following that announcement. In addition, we continue to advance discussions relating to the sale of our operations in Taiwan. If that sale were to conclude, the proceeds would be used to fully repay our revolving credit facility with HSBC and the convertible loan notes issued in March, as well as providing IQE with cash to invest in our core operations and growth strategy. Delivering the best outcome for all of our stakeholders through the strategic review remains the key focus of the Board, and we will provide an update on further progress as soon as we're able to.
I'd now like to hand over to our CEO, Jutta Meier, who will take us through the company H1 performance, current trading, and outlook. Over to you, Jutta.
Thank you, Mark, and thank you, everyone, for joining us for today's presentation. Just to echo what Mark said, on the strategic review, this is obviously something we're working very hard on to achieve the very best outcome for all of our stakeholders. As soon as I can update you further, I will. In terms of what I can talk about for now, let's run to the results from what has been an incredibly busy half. While the performance was below expectations, I'd like to start by talking about some of the factors that contributed to the challenging environment that we've operated in during the half, some of which are directly related to us as a business and some of which are wider macroeconomic trends.
As I've said many times before, markets do not like uncertainty, and it's fair to say that we've seen a significant amount of global economic volatility over the past six months. A large contributor to that has been the impact of U.S. tariff policies. While our operations have remained unaffected, the volatility that tariffs have created for us, for our customers and end markets can be seen in the downturn in the wireless market. This was a market in which we had anticipated a recovery but has remained soft in the first half. In turn, a number of our customers ramped up their inventory in preparation for market uptick that has not materialized in the first half. This was alongside weaker consumer purchasing trends in the mobile handset market.
Another key segment of our business is the military and defense market, and this is a real area of strength for us. We are long-term trusted partners in many of these critical supply chains where we have unique capabilities. In this period, we saw delays to U.S. federal funding cycles, which has impacted revenues for the first half. It is important to note that these orders have not gone away, and we have not lost any market share. Overall, we see significant opportunities in this segment due to the increase in defense spending across the U.S., Europe, and the U.K., which will be a tailwind for our business in the future. Continuing on that positive trajectory, I remain confident that our strategy for diversification into the GaN power and connect markets remains the right one. There's been no escaping from the popularization of AI for the last year.
The increasing demand for data center and communications technology that underpins this is a market that we are well placed to continue expanding in. We have made good progress in this half, both in the development of our technology as well as our customer pipeline in these critical markets. We also anticipate benefiting in the GaN power market from the exit of a key foundry player, which will provide us with the opportunity to increase our market share and better establish IQE as a leader in the sector. On this slide, I'd like to give you a quick overview of how each of our segments performed in the half. As I mentioned on the previous slide, our connect portfolio is benefiting from the demand from AI technologies with our high-performance devices supporting requirements for greater connectivity, speed, and functionality.
Most notably, we secured a number of Tier 1 design wins for products enabling next-generation AI in hyperscale data center infrastructure. As this market continues to grow, we are preparing for the future by launching our first six-inch foundry platform to serve future demands for silicon photonics. In a sense, we are continuing to see appetite for our products in the consumer mobile market, and we are in late-stage qualification for using our higher-performance VCSELs to power the next generation of 3D sensing in smartphones. In addition, our infrared consumer portfolio is continuing to expand across autonomous defense platforms, in particular through our long wavelength solutions. Looking at power, while this segment has been impacted by the slower adoption of electric vehicle technology, we have a very strong development pipeline.
For example, our joint development agreement with X-FAB is continuing to progress well, and we have sampling underway with a number of leading automotive power customers. Finally, we are very excited about the opportunities in display, which include enabling gesture recognition for AR/VR technologies through our 8-in GaN on silicon technology. Moving on to the financials, revenues were down year-on-year at £45.3 million. Looking at this from a segmental point of view, starting with wireless, which you can see was the main driver for the change. A key thing to note is that the strong performance in first half 2024 was a historical outlier backing the cyclical trend that usually sees a stronger second half performance. This reflected an inventory ramp-up and an expansion of a market recovery that did not materialize in the half and has instead seen continued softness in the mobile handset market.
On top of this, tariff uncertainty has further impacted end markets. Taken together, revenues in wireless have come in below our expectations. Meanwhile, looking at photonics, revenues were broadly flat year-on-year in a much less historically volatile segment. While the funding delays to U.S. defense spending that I mentioned earlier had an impact, this was partially offset by our stronger performance for Indian Fosphite in data communications for AI markets. As highlighted in the last slide, this will continue to be an exciting growth driver for the business moving forward. Turning to our financial highlights, having covered revenue on the prior slide, our adjusted EBITDA performance reflects our high fixed cost base, which means that capacity underutilization has a significant impact on this metric. Addressing this is a key focus for the management team moving forward.
I'm pleased that our adjusted operating cash flow saw a significant improvement year-on-year. This is a reflection of our careful cash management during the period as we kept a tight control on costs and benefited from working capital inflow of £4.6 million. Our adjusted net debt at the end of the period stood at £23.5 million, with an undrawn balance of $5.5 million on our revolving credit facility as at that date. Noting, the revolving credit facility is a multi-currency facility. We also held cash and cash equivalents of £17 million at the end of the period, following the £18 million convertible loan note fundraise in March 2025. Turning to the next slide, this net debt bridge gives you a sense of the movements that led to the net debt position at the end of the half.
As I spoke about on the last slide, I'd start by highlighting the positive inflows that came from adjusted cash flow operations and working capital. I'm pleased with the progress we've made there, and it reflects positive progress on our cost control program, which I'll go into in some more detail on the next slide. You'll see that the increase in the net debt position was largely driven by high interest costs and lease liabilities. The outflows from development and PPE reflect our continued prudent investment into the group's GaN power diversification and capacity expansion. I'd like to touch on the actions we've taken around cost control and cash generation. I've been consistent since I've arrived at the business that cost control has to be a major priority for IQE, as you'd expect given my background as CFO.
The last time I spoke to you all, I told you about the decisive actions we were taking to ensure that our cost base was right-sized, and you will recognize some of those actions here. This isn't about bringing in new actions at every half, but rather setting out an improved blueprint for the business, and I'm pleased that we are maintaining that improved fiscal profile. We have continued to maintain tight cost controls over discretionary and SG&A spend, maintained our right-sized headcount, and continued our asset optimization program, resulting from site consolidation. We've also agreed on a share swap scheme in lieu of salary for senior management, which came into effect in July.
It's worth restating at this point that while these actions are a major focus, due to the high fixed cost nature of our business, significant improvements will only be seen on EBITDA level when market recovery brings better utilization and operating leverage. Until that time, we are focused on doing all that we can to improve our cost base. Turning now to look at our current trading and outlook. As we've discussed, the factors behind the softness in wireless markets are expected to persist through 2025, and the delays to federal funding cycles in the U.S. military and defense sector are expected to result in the deferral of orders into 2026. Therefore, revenue for the full year is expected to be between £90 million- £100 million with an adjusted EBITDA position of between a £5 million loss to a £2 million profit.
IQE's banking facilities are provided by HSBC, who we have a longstanding and supportive relationship with. As a result, we have received a waiver of the Q3 2025 EBITDA governance testing. We're also engaged with stakeholders to improve both the group's near-term liquidity position and working capital cycle. Our robust and expanding customer pipeline demonstrates the ongoing market demand for IQE products, and we expect market conditions to improve in 2026 as existing inventory levels start to normalize. We are encouraged by the strong organic growth we are seeing in multiple areas, including VCSELs for next-generation smartphones, indium phosphide products for data center and optical communication markets, MicroLED for augmented and virtual reality, and GaN RF products. Clearly, our key focus is on the outcome of our strategic review.
As Mark told you earlier, we are pleased to be in receipt of an approach, with additional early-stage expressions of interest having come in following our original announcement. While we are restricted in what we can say at the moment, we look forward to updating you as soon as possible. Outside of the review, we have a long-term vision for the business centered on sustainable growth, which we are supporting through the operational discipline and cost control measures. IQE is built on innovation, and that's what has made us stand out over the last 35 years. We are continuing to invest in the development of our products to support the critical supply chains in which we operate, including AI, data centers, and military and defense.
While we have a lot going on, for us, it's very much business as usual as we remain focused on delivering maximum value for our shareholders and serving our global customer base. Thank you for joining our interim results presentation, and I look forward to updating you on our continued progress in the near future.