VIGO Photonics S.A. (WSE: VGO), a global manufacturer of the most advanced photonic mid-infrared detectors, detection modules and semiconductor materials, published its interim report for Q1 2022. The main factor that influenced the results achieved in this period was the planned and previously announced commissioning of a new investment in technological facilities and clean room, which will allow to increase the current production of detector modules to 100,000 units per year. According to the presented data, in the first quarter of this year the Company generated PLN 11.7 million of sales revenues (-19.6% YOY), PLN 2.8 million of adjusted EBITDA – after deferred income tax (vs. PLN 6.3 million a year earlier) and PLN 0.9 million of adjusted net profit (-80.8% YOY). VIGO upholds the Company’s revenue target for 2022 of PLN 80 million published in its development strategy.
In Q1 2022 VIGO was involved in the start-up process of the newly established technology and production facilities, including the clean room. For this period – as previously planned and announced – a part of the production processes was paused, which had an impact on limiting the achievement of sales volumes and thus, to a significant extent, on operating results. The Management Board indicates that this was a one-off event and upholds the revenue target published in the VIGO 2026 Strategy for the end of 2022 at the level of PLN 80 million. Owing to the launch of the new clean room, the Company’s production capacity has considerably increased, enabling it to manufacture up to 100,000 detectors per year.
“The investment, the last stage of which was implemented in the first months of this year, is of key long-term importance to us. Although the results of the past quarter are lower, which we anticipated, it will not have a significant impact given the Company’s further development. Firstly, thanks to the launch of a clean room, in which we will conduct high-quality production of detection structures, we will substantially increase the quality parameters of our products. This will allow us to carry out projects for the most demanding customers from the dynamically growing industry of semiconductor materials or the military. We are implementing these activities taking into account long-term perspective of VIGO development. We are already observing an increase in orders in comparison to the same period last year. Secondly, the revenue level for 2022 announced in the new strategy is upheld”, says Adam Piotrowski, President of the Management Board of VIGO Photonics S.A.
At the end of March this year the Company’s revenues from the detector modules segment amounted to PLN 11.19 million and from semiconductor materials to over PLN 0.53 million. The highest sales increase that VIGO Photonics generated, namely by 53.1% YOY to PLN 8.33 million, was achieved in industrial applications.
VIGO’s customers are primarily foreign entities, which is why the expansion of its international sales network is so important to the Company’s operations. Since the beginning of 2022, the newly completed team in the US office, opened a year ago, already fully supports the American market.
“To date, we have relied heavily on the network of distributors that we have built. Given our Company’s maturity level, we felt that we should have our own branches in more strategic markets. Hence the decision to have an office in the United States. We are currently developing this facility, we have created an efficient sales team, which has been working at full speed since the beginning of this year”, explains VIGO President.
THE IMPACT OF WAR IN UKRAINE ON THE COMPANY’S OPERATIONS
The war in Ukraine, which has been ongoing since the end of February this year, has not significantly affected VIGO’s business, although the Company has decided to end its cooperation with suppliers of components from Russia. Moreover, the last sale to customers from this country was recorded by the Company in 2021 and its share in the total revenue for this period was a mere 0.3%.
“We are in the final qualification processes for new component suppliers. This stage will last until the beginning of July this year. We intend to select components that we believe are the best and most suitable for our operations”, Adam Piotrowski points out.
NEW PERSPECTIVES IN REGULATORY ENVIRONMENT
The RoHS Directive, which has been in force for many years, concerning the elimination of products containing substances hazardous to health such as mercury or lead, has largely influenced the directions of development included in the 2021 Strategy published by VIGO. In the scope of the Company’s activities, it was necessary to implement new materials for the production of detectors: indium gallium arsenide InGaAs or indium arsenide antimony InAsSb. This also meant that the production of MCT detectors had to be phased out. Recently, however, information has emerged which may indicate that the period for phasing out the materials based on elements considered to be hazardous will be extended to 2028.
“We had the opportunity to read the application and the report arguing for an extension of the deadline for phasing out the production of materials based on mercury, lead or cadmium – in our case, on mercury cadmium telluride. If the European Commission were to accept this position, then the process of replacing the production of our detectors could also be extended. We know that our customers would also approve of such a decision due to their cycles and technological chains. However, I would like to make it clear that we are ready for different scenarios. If the deadlines are extended, it may affect, to some extent, the product sales mix in the future when compared to that originally assumed in the adopted strategy”, says Adam Piotrowski.
INVESTMENT INCUBATOR ACTIVITIES
In Q1 2022, the investment vehicle VIGO Ventures invested nearly EUR 1 million in a Dutch integrated photonics company – PhotonIP. Earlier, at the end of 2021, a Spanish start-up – Deep Detection, which works on X‑ray‑based solutions, also joined this incubator’s investment portfolio..
VIGO Ventures – VIGO We Innovation sp. z o.o. (joint venture, 50:50) was created by VIGO and Warsaw Equity Group fund. The aim of the incubator is to invest and develop high technology projects with global potential. The value of the investment may reach up to EUR 1 million. The entities considered are those at an early stage of development, but having verified innovative technological solutions from photonics sector or using solutions from photonics sector or suppliers for photonics sector. Currently, the investment portfolio of VIGO Ventures includes six projects concerning, among other things, quantum dots, vision systems, ultrafast lasers, fabrication of photonic integrated circuits or design of integrated circuits. The activities of the investment incubator also support VIGO’s future development by providing a broad overview of the latest technologies and trends.
NEW GOALS IN THE NEW DEVELOPMENT STRATEGY
In 2021, VIGO presented a new two-stage development strategy for 2021-2026, in which six development initiatives – technological areas, aimed at strengthening the Company’s position as one of the most innovative and dynamically developing companies on the market, were singled out. By 2023, the Company’s objective will be to continue the R&D projects initiated in the field of photonic technologies, integrated circuits, detectors made of III-V materials, epitaxy of semiconductor materials and infrared source technologies. The technological and technical base will be developed. The development strategy will allow the Company to maintain a 20-30% annual growth rate and is expected to generate revenues of approximately PLN 80 million in 2022 and PLN 100 million in 2023. EBITDA at this stage is expected to increase to approximately PLN 40 million in 2023. The second stage of the strategy will be executed until 2026 (inclusive) and will consist in the implementation of selected development initiatives.
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