IQE : Annual Report & Accounts 2023

Annual Report and Accounts 2023

As the world's leading compound semiconductor supplier, IQE is positioned at the forefront

of technology to innovate for a better tomorrow.

Our Vision

Enabling a brighter future through the power of advanced semiconductors.

Our Mission

Our products are fundamental in the technologies we use in our everyday life.​As leaders in semiconductor materials innovation, we are committed to responsibly powering the next generation of technology to drive society towards a sustainable, Net Zero future.​We are enabling a global technology revolution to create a connected, safe and inclusive world.

Revenue

£115m

2022: £167m

Net operating loss

£(26)m

2022: £(73)m

Adjusted EBITDA

£4m

2022: £23m

Adjusted net debt

£(2)m

2022: £(15)m

Cash capital expenditure

£12m

2022: £9m

The nature and description of alternative performance measures are included in Note 5 on page 124. Adjusted net debt is defined on page 98.

Contents

1. Strategic Report

Our business at a glance	2
Solving tomorrow's challenges	4
Our investment case	6
IQE in the value chain	8
Chairman's statement	10
Business model	12
Chief Executive Officer's statement	14
Market review	18
Our strategy	20
Key performance indicators	22
Financial review	24
Stakeholder engagement	28
Section 172(1) statement	30
Responsible business	31
TCFD Report	42
Risk management	50
Viability statement	56
2. Corporate Governance
Board of Directors	58
Chairman's Governance Overview	60
Audit & Risk Committee Report	65
Nominations Committee Report	70
ESG Committee Report	71
Remuneration Committee Report	72
Directors' Remuneration Policy	74
Directors' Remuneration Report	80
Directors' Report	86
3. Financial Statements
Auditors Report	90
Financial Statements	98
Glossary	159
Investor information	161

Strategic Report

IQE Annual Report and Accounts 2023

1

Our business at a glance

Who we are

IQE is the world's only pure play epitaxy provider with a global footprint, strategically positioned with manufacturing facilities on three continents. We are committed to serving our customers in their respective geographies, providing world- class technology, flexibility and supply chain security.

What we do

IQE provides compound semiconductor manufacturing services, delivering powerful foundational technologies shaping the future of innovation. Compound semiconductors are critical for enabling the megatrends of the future thanks to their advanced performance characteristics, and we are proudly partnering with our customers to create the intelligently connected, low-carbon world of tomorrow.

Our growth potential

ConnectSense

The digital world continues to evolve and we reside in an era where connectivity has become indispensable. From mobile devices and 5G communication systems, to intelligent gadgets in our households and vehicles, IQE's connectivity products facilitate high-performance wireless communication.

The global sensing market remains poised for substantial growth in the coming years, fuelled by the demand for smart connected devices capable of sensing and communicating with their surroundings. Leveraging an impressive background in 3D sensing, IQE sense technologies are focused on enabling healthcare wearables, LiDAR technology for autonomous vehicles,

and industrial automation.

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Our global footprint	Uniquely positioned for supply security
	and scalability

Europe Newport

Cardiff

Milton Keynes

North	Washington
America	Massachusetts
	North Carolina
Asia	Taiwan

Strategic Report

PowerDisplay

Energy is a cornerstone of both the digital landscape and our daily existence. To tackle global power-related challenges like climate change, the utilisation of compound semiconductors will be essential due to their performance and energy efficiency advantages. The growth of Power Electronics, particularly enabled by GaN, is serving the rising demand for electric vehicles, intelligent power grids, and efficient consumer applications - critical elements in the pursuit of achieving Net Zero.

IQE Annual Report and Accounts 2023

Display technology will see notable evolution driven by the growing expectations of consumers and industries for more vivid and immersive display experiences. IQE is focused on contributing to the advancement of future display technologies through microLED to deliver enhanced performance and reduced power consumption, through collaboration with key strategic partners.

3

Solving tomorrow's challenges

Purposeful & sustainable innovation

IQE has a market-led approach to solve tomorrow's technology challenges

GaN-led diversification strategy in action

Gallium Nitride (GaN) is an advanced material which is employed across a wide range

of applications and which offers numerous performance advantages over traditional silicon- based semiconductors, as it enables smaller, more efficient devices. Today GaN underpins 5G/6G and advanced communication systems and it is emerging as a cornerstone material for Power Electronics applications, such as in high-end consumer electronic chargers, and it will enable key power sectors such as electric vehicles. In the longer term, GaN's optical properties will be exploited for efficient, ultra-high resolution displays (MicroLEDs).

IQE's GaN-led diversification strategy prioritises market-led growth opportunities, leveraging our established GaN pedigree. We have made strategic investments in our GaN capacity, with four new GaN reactors being added to our fleet in the US and UK. We are poised to add additional capacity as the market requires and the Company has a pipeline of GaN R&D projects focused on enabling both Power Electronic devices and next-generation display applications.

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Strategic Report

Q&A	Rodney Pelzel
Chief Technology Officer

How will IQE enable artificial intelligence in a Net Zero world?

The global technology sector is undergoing a rapid and transformational shift as it seeks to meet the demands of artificial intelligence (AI) and related applications. AI is not a new technology, but it has recently been thrust into the spotlight thanks to consumer recognition of, and growing demand for, generative AI.

With AI firmly in focus, demand for emerging AI applications is poised to fuel growth in the sector. Future use cases will require AI to operate on real-time, dynamic, high-fidelity inputs and outputs at the edge. This presents challenges for next generation sensing and display technologies. In addition, the need for high speed, ultra- reliable, low-latency,high-bandwidth connectivity will create bottlenecks as the amount of AI-generated data grows exponentially. Together with silicon, compound semiconductors will be needed to overcome these challenges and deliver the AI ecosystem of the future. Solutions will include GaAs and InP-based photonics for accurate sensing; GaN and GaAs-based microLEDs for efficient, ultra-high resolution displays and AR/VR environments; and GaN, GaAs and InP-basednext-gen 5G/6G connectivity (both wired and wireless).

Scaling of AI will require large amounts of incremental power which will generate emissions which is at odds with energy efficiency targets and Net Zero objectives. Consequently, GaN-power devices will become essential for the achievement of AI in an environmentally responsible manner.

The future is faster, cleaner and more efficient with compound semiconductors; they are the cornerstone for enabling AI in a Net Zero world.

IQE Annual Report and Accounts 2023

5

Our investment case

Solving tomorrow's challenges

Addressing the technological problems of the future requires new thinking, today. IQE is at the forefront of advanced compound semiconductor materials innovation offering leading-edge solutions and an unmatched customer experience.

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Our key differentiators

1

Only global pure play epitaxy supplier

We are strategically positioned with the industry's most comprehensive product portfolio and unique three-continent footprint. We offer our customers unrivalled flexibility, scalability and supply security of the world's most advanced compound semiconductor products.

2

Market-led approach

We partner with our customers to create differentiated solutions to address market challenges

using our scalable materials platforms.

3

Expansion capacity and scalability

In a market with high barriers to entry we have a significant first mover advantage for scaling our operations to meet future demand, with the potential to expand 3x within our current site footprint.

4

Unmatched expertise

As global epitaxy experts, IQE has over three decades of experience and an established track record of creating leading-edge technology with an unrivalled intellectual property portfolio.

5

Cornerstone of device technology

Due to their high performance and efficiency characteristics, compound semiconductors

are essential for enabling an intelligently connected, immersive, low-carbon world.

6

Delivering value

We continue to transform our commercial and operational model to deliver sustainable growth

for all of our stakeholders, including our customers, partners, employees and shareholders.

Strategic Report

IQE Annual Report and Accounts 2023

7

IQE in the value chain

Strategically positioned in the global value chain

Substrates

Base materials

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Epitaxy is where the value is created

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