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Leading innovation from within

IQE plc 2019 Trading Update Roadshow

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Trading Update – 24th March 2020 All figures for 2019 are unaudited 1

Trading Update: 2019 Full Year Financials

Trading Update 2019

3

Wireless revenues Global footprint USA (Pennsylvania, North Carolina, Massachusetts, Washington), Europe (Newport, Cardiff, Milton Keynes) Asia (Taiwan, Singapore) Operational Highlights Overview

The leading global supplier

• f advanced compound

semiconductor wafers

Listed on the FTSE AIM index Founded

1988

Staff

641

New mega-foundry in Newport in mass production Taiwan expansion completed in Q2 2019 - increase in wireless capacity by

9

Tools in production

• r production

ready

40%

Financial Highlights Revenue

£140m

In line with November Trading Update; Down 10% year-on-year

Adj EBITDA

£16.2m £68.2m

Photonics revenues

£69.8m

+4.4% year-on-year

Adj Cash generated from Operations

£16.5m

FY19 capital investment

£42.1m

£31.9m PPE £10.2m R&D & Purchased Intangibles

• 23%

year-on- year

12% Adj EBITDA Margin 100% EBITDA cash conversion

Trading Update – 24th March 2020 All figures for 2019 are unaudited

2019 Financial Performance

In line with November Trading Update guidance

4 114 133 155 156 140 FY15 FY16 FY17 FY18 FY19

Revenue £’m

Revenue down 10% YoY

• £140m revenue in line with November

Trading Update (£136m to £142m)

• FX tailwind of £6m
• Year-on-year reduction primarily as a result
• f two key customers:

‒ Wireless customer affected by changes in Global Markets ‒ Photonics customer affected by technical issues independent of IQE

29 32 37 26 17 FY15 FY16 FY17 FY18 FY19

Adjusted EBITDA £’m

Loss from operations in line with expectations

• £4.7m Adj operating loss in line with

November Trading Update (“mid-single-digit

• perating loss”)

Adj EBITDA reduced due to high

• perating leverage
• £16.2m EBITDA
• Year-on-year reduction resulting from lower

revenues and the costs associated with increased capacity

19 22 27 16 (5) FY15 FY16 FY17 FY18 FY19

Adjusted Operating Profit £’m

Trading Update – 24th March 2020 All figures for 2019 are unaudited

2019 Business Unit Segmentation

5

Revenue Segmentation

Revenue £’m FY19 FY18 Restated

Wireless Revenue 68.2 87.9 Photonics Revenue 69.8 66.8 CMOS++ 2.0 1.6 Total Revenue 140.0 156.3

Operating Profit Segmentation

Adjusted Operating Profit £’m FY19 FY18 Restated

Wireless 6.6 16.5 Photonics * 1.3 10.2 CMOS++ (1.3) (1.3) Corporate Costs (11.3) (9.5) Total Adjusted Operating Profit (4.7) 16.0

* Photonics profit was low in 2019 due to low utilisation of Photonics reactors including the newly constructed Newport Mega-Foundry. The inherent margin potential of Photonics exceeds that of the more mature Wireless segment and given the high operating leverage of production facilities, operating margins are expected to increase significantly with volume growth.

Trading Update – 24th March 2020 All figures for 2019 are unaudited

Revenue Segmentation

6

Business Unit Breakdown 2019

(approximate splits)

55% 61% 10% 9% 35% 29% 0% 25% 50% 75% 100% FY19 FY18

Americas Europe Asia

Geographical Segmentation

(approximate splits)

70% 30% 0% 25% 50% 75% 100% Wireless

GaAs GaN

50% 30% 20% 0% 25% 50% 75% 100% Photonics

VCSEL Infra Red InP

Trading Update – 24th March 2020 All figures for 2019 are unaudited

Capex

7

Cash used for capex

• Cash Capex of £32 million at the lower end of

the 2019 guidance of £30 – £40 million

• Expansion capex makes up £29.3m (92%) of

cash capex in FY19

• Underlying cash capex has consistently

reduced year on year since FY16

Intangible Capitalisation

• £10.2 million intangibles capitalised in FY 2019

(£12m in FY18)

• Continued investment in future compound

semiconductor technologies

Expansion phase of infrastructure investment completed

• Newport Mega-Foundry has nine production-

ready tools and one to follow in Q2 2020

• Taiwan expansion has increased site capacity

by 40%

• Future tool capex to scale for volume is

discretionary and linear with future revenue

• pportunity

FY16 FY17 FY18 FY19

Capex Cashflows £’m

Other Expansion Asset Finance £30m £32m £11m £11m FY16 FY17 FY18 FY19

PPE Additions £’m

Other Expansion £39m £26m £16m £6m Trading Update – 24th March 2020 All figures for 2019 are unaudited

Cashflow and Net Debt

Reflective of trading and the completion of capacity expansion

8 23 24 31 17 17 FY15 FY16 FY17 FY18 FY19

Adjusted Operating Cashflow £’m

Operating Cashflow in line with prior year

• £17m cash from operations before

exceptional items

• 100% Adj EBITDA cash conversion

Net Debt in line with expectations

• £16.0m at lower end of November Trading

Update guidance (£15-20m)

• Strong balance sheet with access to material

additional debt facilities (increased to c£57m during FY19)

• IQE will continue to evaluate actions to

balance the preservation of cash with the long- term need of the business

(23) (40) 46 21 (16) FY15 FY16 FY17 FY18 FY19

Net Debt £’m

Trading Update – 24th March 2020 All figures for 2019 are unaudited

Strategy and Business Update

The speed of market changes has been rapid and highly disruptive in the short-term

Market Context

In the short-term, global trade conditions have been disruptive to IQE’s business performance. In the medium to long-term, IQE is well positioned to adapt to changing global technology markets.

10

The deployment of 5G networks represents a multi-year mega replacement cycle and

• ne which will

transform how we all live and work Global trade conditions have resulted in changes in global technology markets IQE’s global manufacturing footprint and position as materials solutions provider, supplying the whole market, mean we are well placed to adapt As the macro trends

• f 5G and connected

devices play out, IQE remains uniquely placed to capitalise on expanding global markets for compound semiconductors 5G Growth Driver Changing Markets Disruption Adaptable Well positioned

Trading Update – 24th March 2020

Strategic update 2019 objectives

Strategic Goal

• Leveraging and expanding the IP Portfolio
• Developing new products
• Targeting new market entry
• Innovation through integration and miniaturization

Progress

• Full-service DFB lasers for data comms using Nano-

Imprint Lithography

• Next-gen Power Amplifiers for 5G
• Filters and Switches for 5G Front End Module

(including patented cREO technology)

• 200mm VCSEL wafer technology development

underway

• Quasi-Photonic Crystal for VCSEL module integration
• Long wavelength VCSELs, best in class initial results
• Infra red lasers for environmental and health

monitoring; excellent progress Strategic Goal

• Expand Group capacity
• Qualify Customers in strategic markets
• Enhance management controls, systems and

processes to enable mass production Progress

• Major investment programme substantially

completed ‒ Infrastructure phases of Newport Mega Foundry and Taiwan expansion ‒ GaN expansion in Massachusetts

• Commencement of production at Newport
• Training academy & competency framework
• Executive Management team structure implemented
• New Product Introduction governance process
• Investments in IT systems to scale the business
• Investment in Account Management

11 Strategic Goal

• Superior unit economics from superior yields and

economies of scale

• Customer and market diversification
• Shift to Materials Solution Provider

Progress

• Contract extension with existing major VCSEL

customer

• Commencement of production with second

major VCSEL customer in Android supply chain

• Device and module qualification with a chip

subsidiary of a major Android OEM

• Other VCSEL qualifications ongoing
• Yields and tool throughput in Newport exceeding

business case

• Wireless customer diversification into major

Taiwanese foundries.

Investing in the future

• f compound semis

Scaling up the business for growth Expanding Margins and Cashflows

Trading Update – 24th March 2020

Well-positioned to withstand near-term uncertainty

Despite a challenging year in 2019 progress has been made to ensure the business is well-positioned for the future

12

Infrastructure phase of the capacity expansion programme completed Investment in GaN capacity in Massachusetts to capitalise on forthcoming 5G infrastructure deployments completed Newport Mega-Foundry 3D Sensing Production and Qualification progress Next generation product development Evolution of the Board and Executive Management to support growth ambitions and scalability of operations Increase to credit facilities to support navigation of challenging market conditions

Trading Update – 24th March 2020

5G Infrastructure Rollout:

• 5G Base Stations
• GaN on Si
• GaN on SiC

3D Sensing Proliferation:

• Low end smartphone
• Wearables / consumer devices
• Commercial and industrial

applications

• Quasi Photonic Crystal for module

integration

Growth drivers for IQE

13

Short Term Medium Term Long Term

High Speed Datacoms:

• 10G & 25G DFBs

(Distributed Feedback Lasers)

• 10G & 25G APDs

(Avalanche Photo Diodes)

• PIN detectors

Asian Market Wireless Demand:

• Power Amplifiers

for handsets

• Introduction of

integrated PA

3D Sensing Proliferation:

• Android Market

(High/Mid end)

• World-facing camera

(ToF)

• Lidar

Environmental & Health Monitoring LiDAR Connected Devices Smart Grids 5G Infrastructure Rollout:

• GaN for mm Wave / small cell networks
• High speed Lasers & detectors for backhaul networks

5G Handset Opportunity:

• Filters and Switches (cREO)
• Higher efficiency Power Amplifiers
• Integrated PA & Switch (BiHEMT)

Trading Update – 24th March 2020

Healthcare Big Data Sensing LiDAR Connectivity

Portable Telehealth Monitoring Robotics and Automation Autonomous Driving Connected Vehicles Energy Generation LEDs Solar Energy Industrial Heating Office Communications Satellite Communications 5G Base Stations 5G Small Cell Networks Augmented Reality 3D Sensing Personal Devices Security WiFi Electrification Diagnostics High-Speed Data Centers AI Machine Vision Medical Imaging

Compound semiconductors everywhere

Smart Grids

Leading innovation from within

14

Wireless handset opportunity

15

RF Front End & Connectivity Market (2018-2025)

Source: Yole (2019) 16

Rapid Growth driven by 5G and WiFi6

RF Front End & Connectivity – IQE Addressable Content with NPI (2020-2023)

Source: Yole (2019) 17

IQE Solution Si

cREO Epi Metal Epi Al(Sc)N Sputtered / epi-Metal

5G Infrastructure Opportunity

18

1kHz 1MHz 1GHz 10GHz

Frequency Voltage Rating

Inverters

(Motor controls, PV, UPS)

IT & Consumer Power Supplies EV / HEV Grid Wind Rail DC-DC Conversion CATV Infrastructure A&D 50V 200V 600V 1,200V

GaN uniquely positioned to address

• pportunities over unprecedented range
• f operating voltage and frequency.

IQE GaN Markets

GaN Power Electronics GaN RF

mmWave 5G

19

GaN Market Size Continues to Expand

Source: Yole (2019)

2018 2024

20

10G & 25G DFB for high speed fronthaul and backhaul networks

21

• DFB laser = Distributed Feed Back Laser
• Critical for fibre optic communications
• Fibre to the premises (FTTX)
• Data Centre
• Core network (front and backhaul)
• DFB wafers : Base + grating + overgrowth
• IQE historically provided Base epi only
• We have developed a disruptive technology for grating:
• NIL – Nano Imprint Lithography
• High perform (flexible), high throughput and low cost
• Further applications in VCSEL
• Multiple qualifications for “full service” wafers (2-3x value add)

Grating – viewed by Scanning Electron Microscope XX X X X X X X X X X X X X X X X X X X X X X X X X XXX Overgrowth Grating Base

3D Sensing Proliferation

22

The 3D Sensing Market is set for Exceptional Growth

23

2019 2022 and beyond 2020 / 21

• One major OEM, all phones
• New OEMs, very high-end

phones

• 3DS for Proximity sensing
• ToF world facing camera in

high-end Android

• Multiple OEMs with VCSELs in

volume products

• Android proliferation of 3D

Sensing

• Adoption of world-facing

camera including LIDAR

• Security authentication

standards drive adoption

• BOLED tech development

(>1.3um)

• Cost reductions drive adoption in

even low-end smartphones

• Augmented reality applications

drive adoption

• More devices using VCSELs
• Higher power at safe wavelengths

beyond 1.3um

• Automotive in cabin and

development of LIDAR

Timing has been hard to predict but there is consensus on a large market opportunity

24

IQE has the VCSEL product roadmap to stay #1

25

Manufacturing Platform & Scale

▪ Higher throughput ▪ Increased area yield ▪ Lower unit cost ▪ Better chip economics

Increasing Wafer Size

▪ Larger Die Size ▪ Lower cost per chip ▪ CMOS integration route ▪ Benefit of Si chip fab cost structure

Longer Emission Wavelength

▪ Improved Eye Safety ▪ Below OLED architecture ▪ Higher Power for auto LIDAR

Integration & Miniaturisation

▪ Reduction in module complexity ▪ Reduction in module cost ▪ Expansion in market

• pportunity

300 mm 200 mm 150 mm

IQE’s Content Growth in Handsets

HBT PAs HBT PAs HBT PAs BiHEMT PAs BiHEMT PAs Proximity sensors 3D sensors

Face recognition

TOF sensors

Camera focus

Proximity sensors 3D sensors

World facing / AR-VR

TOF sensors

Camera focus

Accessory sensors 3D sensors

Face recognition

Integrated optics

VCSEL/DOE/WLO

SAW & BAW Filters 5G mm wave Porous Si Switches

26

FY 2020 Outlook and Guidance

FY 2020 Outlook

Q1 Trading in line with prior expectations, but with uncertainty in Global Markets

• Concerns over the spread of Coronavirus (COVID-19) are currently creating significant near-term uncertainty

across global markets. IQE’s production has not been affected (as of 23rd March) by any disruption to production and Q1 2020 trading in line with expectations

• There is a still-evolving risk to future production at IQE or at others within our supply chains. However, as a critical

technology supplier, IQE is less likely to be affected by ‘lockdown’ scenarios than other businesses. This is evidenced by the classification as a critical infrastructure provider in both the States of Pennsylvania and Massachusetts where the Department of Homeland Security deems IQE to have a “special responsibility to maintain (our) normal work schedule”.

• The effects of Coronavirus on global economic output in 2020 and on semiconductor demand are as yet
• uncertain. Given the significant current levels of uncertainty, we are unable to provide more explicit guidance at

this point in time.

• The Group has access to material debt facilities should it be required in the event of a significant downturn. IQE

has a long-standing and trusted relationship with our bankers HSBC who remain supportive. We are in close

• ngoing dialogue regarding the evolving effects of Coronavirus on supply chains and markets. In the event of a

significant slowdown, we will work proactively with HSBC to ensure the ongoing liquidity of the Group.

• We continue to monitor the Coronavirus situation very closely and will update the market as the situation

evolves.

28 Trading Update – 24th March 2020

FY 2020 Investment Guidance

• With the infrastructure phase of the capital investment programme completed in 2019, the PPE cash

capex guidance for 2020 is set at less than £10m.

• The Group will continue to invest in R&D programmes to underpin future growth opportunities, with

intangibles capitalisation in 2020 expected to be less than £10m.

• Capital spend can be reduced further if conditions require additional cash preservation measures.

29 Trading Update – 24th March 2020