31 July 2017
XP Power Limited
(“XP”, “XP Power”
or “the Group”)
Interim Results for the six months
ended 30 June 2017
XP, a world-leading developer and manufacturer of critical power
control components for the electronics industry, today announces
its interim results for the six-month period ended 30 June 2017.
|
Six
months ended |
Six
months ended |
|
|
30
June 2017 |
30
June 2016 |
|
|
(Unaudited) |
(Unaudited) |
|
Highlights |
|
|
|
|
|
|
|
Order intake |
£93.4m |
£61.6m |
|
Revenue |
£80.2m |
£60.3m |
|
Gross margin |
46.9% |
49.0% |
|
Interim dividend per
share (see Note 8) |
31.0p |
29.0p |
|
Adjusted |
|
|
|
Adjusted operating
margin1 |
21.7% |
21.9% |
|
Adjusted profit before
tax1 |
£17.3m |
£13.1m |
|
Adjusted profit
attributable to equity holders1 |
£13.0m |
£10.0m |
|
Adjusted
diluted earnings per share (see Note 9) 1 |
67.3p |
52.2p |
|
Reported |
|
|
|
Operating margin |
18.1% |
21.6% |
|
Profit before tax |
£14.4m |
£12.9m |
|
Profit attributable to
equity holders |
£10.9m |
£9.8m |
|
Diluted earnings per
share |
56.4p |
51.1p |
|
1 Adjusted for intangibles amortisation of £0.1
million (1H 2016: £0.1 million), £2.8 million (1H 2016: £0.1
million) of advisory and aborted acquisitions costs and
£0.8 million (1H 2016: Nil) tax deduction related to the
aborted acquisitions
· Strong first half performance,
with encouraging momentum in orders and revenues as new design wins
enter production, supported by a recovery in capital equipment
markets and Sterling weakness
· Order intake increased by 52% to
£93.4 million (+35% in constant currency)
· Revenue increased by 33% to
£80.2 million (+18% in constant currency)
· Gross margin decreased to 46.9%
(1H 2016: 49.0%) due to exchange rate effects and reallocation of
certain manufacturing costs at EMCO in line with Group policy
· Own-design XP product revenues
increased 39% to a record £60.5 million (1H 2016: £43.4 million),
and now represent 75% of total revenues (1H 2016: 72%)
· Revenues for ultra-high efficiency
“Green XP Power” products continue to grow and are up by 32% to
£18.8 million (1H 2016: £14.2 million) representing 23% of total
revenue (1H 2016: 24%)
· Group to break ground on construction
of a second manufacturing facility in Vietnam in the second half of 2017 to expand
capacity
· Dividend for the first half of
2017 of 31.0 pence per share (1H
2016: 29.0 pence per share) up 7%
James Peters, Chairman,
commented:
“The Group has had a very strong first half. Reported
order intake and revenues for the first six months of 2017 all set
new records, assisted by the weakness of Sterling, a recovery in
the capital equipment markets and, significantly, new design wins
entering their production phase.
Our balance sheet is strong and we are in an excellent position
to make selective acquisitions to further broaden our product
offering and engineering capabilities.
While we remain conscious of potential macroeconomic challenges,
our strong order book, combined with designs won in 2016 and prior
years entering production means that the Board now anticipates the
Group’s performance for the full year will be comfortably ahead of
its existing expectations.”
Enquiries:
XP
Power
Duncan Penny, Chief Executive
+44(0)7776 178 018
Jonathan Rhodes, Finance Director
+44(0)7500 944 614
Citigate Dewe Rogerson
+44(0)20
7638 9571
Kevin Smith/Jos Bieneman
Note to editors
XP Power is a leading international provider of essential power
control solutions. Power direct from the electricity grid is
unsuitable for the equipment which it supplies. XP Power
designs and manufactures power converters – components which
convert power into the right form for our individual customers’
needs, allowing their electronic equipment to function. XP
Power supplies the healthcare, industrial and technology industries
with this mission critical equipment. Significant, long term
investment into research and development means that XP
Power's products frequently offer significantly improved
functionality and efficiency.
For further information, please visit www.xppower.com
31 July 2017
XP Power Limited
(“XP”, “XP Power”
or “the Group”)
Interim Results for the six months
ended 30 June 2017
INTERIM
STATEMENT
Overview
The Group has had a very strong first half of 2017. Our reported
order intake and revenues for the first six months of 2017 all set
new records, assisted by the weakness of Sterling, a recovery in
the capital equipment markets and, significantly, new design wins
entering their production phase. The resulting solid earnings,
cashflow generation and our confidence in the Group’s outlook
support a further increase in the dividend.
We have continued to execute well against our strategy and, most
encouragingly, we are now seeing the positive effect from design
wins on the newer product introductions. The successful
implementation of our strategy continues to drive market share
gains and we are encouraged both by the strength of our order book
and our continued new program wins. Our strong performance is
enabling us to invest part of the cash generated from this revenue
growth to expand our engineering capabilities and fuel our future
growth.
Our strategy and value proposition
The Group has applied a consistent strategy of moving up the
value chain and our growth derives in part from the targeting of
key account customers. Once we are approved to supply these
larger customers, we have continued to be successful in gaining a
larger share of their business. We also continue to expand the
breadth of our product portfolio, both organically and by
acquisition, in what remains a highly fragmented sector, therefore
enabling us to increase our addressable market.
Our value proposition to customers is to reduce their overall
costs of design, manufacture and operation. We achieve this by
providing excellent sales engineering support and producing new
highly reliable products that are easy to design into the
customer’s system, consume less power, take up less space and
reduce installation times.
Our vision is to be the first choice power solutions provider,
delivering the ultimate experience for our customers and as a place
of work for our people.
Trading and Financial Review
XP Power supplies power control solutions to original equipment
manufacturers (“OEMs”) who supply the healthcare, industrial and
technology markets with high value, high reliability
products. The increasing importance of energy efficiency for
environmental, reliability and economic reasons; the necessity for
ever smaller products; the accelerating rate of technological
change; and the increasing proliferation of electronic equipment,
have established a strong foundation for growth in demand for XP
Power’s products.
Order intake of £93.4 million (1H 2016: £61.6 million) was up
52% (35% in constant currency) and set a new record for the Group.
Compared to the same period a year ago, Asia increased by 79%, Europe increased by 38% and North America increased by 58%. The average US
Dollar to Sterling exchange rate was 1.44 in the first half of 2016
compared with 1.26 in the first half of 2017 representing a 13%
weakening of Sterling. This increased the reported order intake in
the first half by approximately £10.2 million, or 17%, compared to
the first half of 2016.
Order intake in the first half of 2017 surpassed revenues with a
resultant book-to-bill ratio of 1.16 (1H 2016: 1.02). Overall
momentum has continued to build in the business and we enter the
second half of the current year with a strong order book of £70.9
million (December 2016: £59.1
million). Approximately half of the 35% order intake growth (in
constant currency) came from existing programs and half from
programs which have entered production within the last year or
so.
Reported revenues grew 33% to £80.2 million in the six months to
30 June 2017 compared to £60.3
million in the same period a year ago. When adjusting to constant
currency the underlying growth was 18%.
Revenues in North America were
£43.7 million (1H 2016: £30.8 million), up 42% compared to the same
period a year ago. Revenues in Europe were £29.4 million (1H 2016: £24.6
million), up 20% on the same period a year ago. Revenues in
Asia were £7.1 million (1H 2016:
£4.9 million), up 45% compared with the same period a year ago.
The healthcare, industrial and technology sectors all delivered
increased revenue in all three of our regions (Asia, Europe
and North America) suggesting a
general market recovery in the capital equipment markets we serve.
On a sector basis, revenues from healthcare grew by 36% to £23.8
million (1H 2016: £17.5 million). Industrial revenues increased by
19% to £34.3 million (1H 2016: £28.8 million). The standout sector
was technology where revenues grew by 58% year on year to £22.1
million (1H 2016: £14.0 million) driven by the semiconductor
manufacturing equipment makers who are exhibiting strong and
sustained growth. In terms of overall revenue for the first half of
2017, industrial represented 43% (1H 2016: 48%), technology
represented 27% (1H 2016: 23%) and healthcare represented 30% (1H
2016: 29%).
Our customer base remains highly diversified with the largest
customer accounting for only 10% of revenue, spread over 120
different programs/part numbers.
Margins
Gross margin in the first half of 2017 was 46.9% (1H 2016:
49.0%). A number of factors led to a reduction compared to the
first half of 2016. Proportionately more of our cost of sales is
denominated in US Dollars compared to our revenues. As Sterling
weakens, our reported revenues increase due to the translation
benefit but so do our cost of sales although at a greater rate. The
result is higher gross margins in absolute terms but the gross
margin percentage declines. The average exchange rate for
converting US Dollars into Sterling in the period was 1.26 in the
first half of 2017 (1H 2016: 1.44); a weakening of 13%. We also
have revenues in Euro with costs in US Dollars. The average
exchange rate for converting Euro into Sterling in the period was
1.17 in the first half of 2017 (1H 2016: 1.30); a 10% weakening of
Sterling. We estimate that the effect of a weaker Sterling reduced
the gross margin percentage by 110 basis points.
In addition, approximately £0.8 million of costs were charged to
cost of sales in the first half of 2017 whereas the corresponding
costs in 2016 were charged to operating expenses. This was a result
of the Group's continuous assessment and integration of EMCO since
its acquisition in November 2015
which had the effect of reducing the gross margin percentage by
approximately 100 basis points.
Operating expenses in the first half were £20.2 million (1H
2016: £16.3 million) after deducting £0.1 million of intangibles
amortisation (1H 2016: £0.1 million) and £2.8 million of advisory
and aborted acquisition costs (1H 2016: £0.1 million). Again, there
is a significant translation effect from the weakening of Sterling
versus the US Dollar following the United Kingdom’s decision to
leave the European Union. We estimate that this translation effect
increased reported operating expenses by approximately £2.0
million. In addition, we had the full period cost impact of the
additional sales and engineering resources added in 2016, plus
those further resources added in 2017 to support the growth in the
business.
We are engaging in ever more complicated programs with many of
our key customers. These customers value XP Power’s engineering
services and power conversion expertise to get them to market more
quickly and solve their power-related challenges. Systems are
becoming more complex and there is more demand for power conversion
solutions that communicate with both the customers’ applications
and with the outside world as the concept of an Internet of Things
promulgates. This area of the market allows us to add more value to
our customers’ engineering teams and is less crowded with low cost
Asian competition. As such, we are reinvesting part of the cash
returns generated from our growth to fund further expansion of our
engineering capabilities.
Gross product development spend was £5.5 million (1H 2016: £3.8
million), £2.0 million of which was capitalised (1H 2016: £2.0
million), and £1.2 million amortised (1H 2016: £1.0 million).
Notwithstanding our investment in additional sales, customer
support and engineering resources to support future growth, we
continue to achieve excellent adjusted operating margins of 21.7%
(1H 2016: 21.9%) highlighting the strength of our business
model.
Taxation
The tax charge for the period was £3.2 million (1H 2016: £2.9
million) which represents an effective tax rate of 22.2% (1H 2016:
22.5%). We have used an effective tax rate of 23% to compute the
adjusted earnings per share.
We currently expect our future tax rate to be in the range of
22% to 24% depending on the geographic distribution of our future
profits.
Financial Position
Class-leading gross and operating margins and modest capital
requirements have resulted in continued strong cash flow. After
payment of the 2016 final dividend our net cash was £8.0 million at
30 June 2017. This compares with net
cash of £3.7 million at 31 December
2016 and net debt of £6.0 million at 30 June 2016.
Product Development
New products are fundamental to our revenue growth. The broader
our product offering, the more opportunity we have to increase
revenues by expanding our available market. As expected, the
significant number of new product families introduced over the last
three years has yet to have a material impact on our revenues,
given the time lag from launch to production. This is due to the
lengthy design-in cycles required by customers to qualify the power
converter in their equipment, as well as by the requirement to gain
the necessary safety agency approvals.
XP launched 14 new product families in the first half of 2017
(1H 2016: 27). The relatively high number of new product
introductions in 2016 was aided by the introduction of a new
labelled product supplier to increase our offering of DC-DC
converters. We continue to lead our industry on the introduction of
high efficiency, “green” products, with 12 of those new products
released in the first half of 2017 being of high efficiency design
and/or low stand-by power.
Revenue from own design products was £60.5 million (1H 2016:
£43.4 million) up 39% from the same period in 2016 and now
represents 75% of total revenue (1H 2016: 72%).
With larger customers continuing to reduce the number of vendors
they deal with, XP Power’s broad product offering, excellent global
engineering support, in-house manufacturing capability and
industry-leading environmental credentials leave the Group
well-placed to secure further preferred supplier agreements.
Manufacturing Progress
XP Power’s move into manufacturing in 2006 has been instrumental
in enabling the Group to win approved and preferred supplier status
with new Blue Chip customers who value suppliers that have complete
control over their supply chain and product manufacture to ensure
the highest levels of quality and agility.
To supplement our original Chinese manufacturing facility in
Kunshan near Shanghai, our
Vietnamese manufacturing facility, located in Ho Chi Minh City, began production of its
first magnetic components in March
2012 and is now producing the majority of the Group’s
requirement for magnetics.
Producing our own magnetic components in Vietnam is helping us mitigate the continued
rise of Chinese labour costs and the appreciation of the Chinese
Renminbi. In addition, extending vertical integration to the
critical magnetic components used in power converters is seen as an
additional value proposition by many of our customers, notably in
the healthcare and high reliability industrial sectors.
In the fourth quarter of 2014 we began production of the first
complete power converters in Vietnam. We now have 259 (1H 2016: 113) part
numbers approved for production in Vietnam with more in the pipeline. XP
manufactured 693,000 (1H 2016: 550,000) power converters in total
during the first half of 2017 and 416,000 (1H 2016: 140,000) of
these were produced in Vietnam. We
expect the proportion of power converters produced in Vietnam to increase further as we transfer
more products to that facility. Kunshan will focus on the higher
power, higher complexity products.
We intend to break ground and commence construction of a second
factory on our existing site in Vietnam in the second half of this year, with
production scheduled to come on stream in 2019. We estimate that
our existing Asian manufacturing facilities have the capacity to
produce approximately US$170 million
of end revenue of our own manufactured products. The second
facility in Vietnam will add an
additional capability of approximately US$130 million of revenue.
We estimate the cost of the Vietnam II building and the initial
equipment set to be approximately US$6.5
million, of which US$1.9
million will be incurred in the second half of 2017 and the
remainder in 2018.
Dividend
The Company makes quarterly dividend payments. Our strong cash
flow and confidence in the Group’s prospects have enabled us to
increase total dividends for the first half by 7% to 31.0 pence per share (1H 2016: 29.0 pence per share).
The first quarter dividend payment of 15
pence per share was made on 10 July
2017. The second quarter dividend of 16 pence per share will be paid on 12 October 2017 to shareholders on the register
at 15 September 2017.
The compound average growth rate in dividends over the last 10
years has been 14%.
Environmental Impact and “Green XP
Power” products
XP Power has placed improved environmental performance at the
heart of its operations both in terms of minimising the impact its
activities have on the environment and, as importantly, in its
product development strategy.
We have developed a class-leading portfolio of green products
with efficiencies up to 95% and many of these products also have
low stand-by power (a feature to reduce the power consumed while
the end equipment is not operational but in stand-by mode).
Revenues for these ultra-high efficiency “Green XP Power” products
continue to grow and are up by 32% to £18.8 million (1H 2016: £14.2
million) representing 23% of total revenue (1H 2016: 24%).
Brexit
The continuing weakness of Sterling versus the US Dollar since
the United Kingdom voted to leave
the European Union in June 2016 has a
material effect on the presentation of our financial results.
Approximately 81% of our revenues are denominated in US Dollars and
the translation of these revenues into Sterling for reporting
purposes has had a beneficial effect. However, the majority of our
cost of sales and a large proportion of our operating expenses are
also denominated in US Dollars for which the translation into
Sterling has a negative impact, thereby significantly dampening any
effect on the operating margin.
In terms of the broader economic impacts of Brexit on our
business, we do not consider that they will be material. Our
products are made in Asia and are
already imported into Europe where
we have warehouses in bothGermany and the United Kingdom. In the event that the
United Kingdom leaves the single
market, we would simply ship more of our product destined for the
EU directly into Germany or
another appropriate location.
Acquisitions
As previously announced, the Group is actively seeking
acquisitions to broaden its product offering and engineering
capabilities, and further underpin its future growth. Advisory and
abortive acquisitions costs in the period were £2.8 million (1H
2016: £0.1 million).
We continue to review suitable acquisition opportunities.
Outlook
We have made a very strong start to 2017 and the momentum
experienced in the second half of 2016 has accelerated in the first
half of the current year. We had a strong book-to-bill ratio in the
first half of 2017 of 1.16 and a customer order book of £70.9
million. We are confident that our new product releases and design
wins over the last few years are supporting our revenue growth.
While we remain conscious of potential macroeconomic challenges,
the combination of these factors means that the Board now
anticipates the Group’s performance for the full year will be
comfortably ahead of its existing expectations.
The Group has a strong balance sheet which places us in an
excellent position to make selective acquisitions to further
broaden our product offering and engineering capabilities. We
believe we are now well along the path to achieving our vision of
becoming the first choice power solutions provider to our existing
and target customer base.
Independent review report to XP Power
Limited
Report on review of interim financial
information
Introduction
We have reviewed the accompanying consolidated condensed
financial information of XP Power Limited (“the Company”) and its
subsidiaries (“the Group”) set out on pages 9 to 18, which comprise
the consolidated condensed balance sheet of the Group as at
30 June 2017, the consolidated
condensed statements of comprehensive income, changes in equity and
cash flows for the 6-month period then ended and the related notes.
Management is responsible for the preparation and presentation of
this consolidated condensed interim financial information in
accordance with International Accounting Standard 34 Interim
Financial Reporting as adopted by the European Union and the
Disclosure and Transparency Rules of the United Kingdom’s Financial
Conduct Authority. Our responsibility is to express a conclusion on
this interim financial information based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity.
A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly
financial report, which comprise the “Interim Results” set out on
pages 1 to 2, “Interim Statement” set out on pages 3 to 7 and “Note
14 - Risks and uncertainties” set out on pages 19 to 20, and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the financial
information.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying consolidated condensed
interim financial information is not prepared, in all material
respects, in accordance with International Accounting Standard 34
Interim Financial Reporting as adopted by the European Union
and the Disclosure and Transparency Rules of the United Kingdom’s
Financial Conduct Authority.
PricewaterhouseCoopers LLP
Public Accountants and Chartered Accountants
Singapore,
XP Power Limited
Consolidated Statement of
Comprehensive Income
For the six months ended 30 June 2017
£ Millions |
Note |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016
(Unaudited) |
|
|
|
|
Revenue |
5 |
80.2 |
60.3 |
Cost of sales |
6 |
(42.6) |
(30.8) |
Gross profit |
|
37.6 |
29.5 |
|
|
|
|
Operating expenses |
6 |
(23.1) |
(16.5) |
Operating profit |
|
14.5 |
13.0 |
|
|
|
|
Finance cost |
6 |
(0.1) |
(0.1) |
Profit before income tax |
|
14.4 |
12.9 |
|
|
|
|
Income tax expense |
7 |
(3.2) |
(2.9) |
Profit after income tax |
|
11.2 |
10.0 |
|
|
|
|
Other comprehensive
income: |
|
|
|
|
|
|
|
Cash flow hedges |
|
(0.6) |
- |
Exchange differences on translation
of foreign operations |
|
(0.9) |
6.8 |
Other comprehensive income, net
of tax |
|
(1.5) |
6.8 |
|
|
|
|
Total comprehensive
income |
|
9.7 |
16.8 |
|
|
|
|
Profit attributable to: |
|
|
|
- Equity holders of the Company |
|
10.9 |
9.8 |
- Non-controlling interests |
|
0.3 |
0.2 |
|
|
11.2 |
10.0 |
|
|
|
|
Total comprehensive income
attributable to: |
|
|
|
- Equity holders of the Company |
|
9.4 |
16.6 |
- Non-controlling interests |
|
0.3 |
0.2 |
|
|
9.7 |
16.8 |
|
|
|
|
Earnings per share attributable to equity holders of the
Company |
|
Pence per
Share |
Pence per
Share |
|
|
|
|
|
|
|
|
Basic |
9 |
57.2 |
51.6 |
Diluted |
9 |
56.4 |
51.1 |
Diluted adjusted |
9 |
67.3 |
52.2 |
|
|
|
|
XP Power Limited
Consolidated Balance Sheet
At 30 June
2017
£ Millions |
Note |
At
30
June 2017
(Unaudited) |
At
31
December
2016 |
At
30
June 2016
(Unaudited) |
ASSETS |
|
|
|
|
Current
assets |
|
|
|
|
Cash and cash equivalents |
11 |
11.3 |
9.2 |
5.8 |
Inventories |
|
33.0 |
32.2 |
33.6 |
Trade receivables |
|
23.2 |
21.5 |
21.3 |
Other current assets |
|
2.3 |
2.4 |
2.0 |
Derivative financial
instruments |
|
- |
0.4 |
- |
Total current assets |
|
69.8 |
65.7 |
62.7 |
Non-current
assets |
|
|
|
|
Goodwill |
|
37.5 |
37.7 |
38.6 |
Intangible assets |
10 |
15.9 |
15.3 |
13.3 |
Property, plant and
equipment |
|
19.5 |
19.1 |
17.9 |
Deferred income tax
assets |
|
0.4 |
0.4 |
0.4 |
ESOP loans to
employees |
|
0.4 |
0.7 |
0.7 |
Total non-current
assets |
|
73.7 |
73.2 |
70.9 |
Total
assets |
|
143.5 |
138.9 |
133.6 |
LIABILITIES |
|
|
|
|
Current liabilities |
|
|
|
|
Current income tax liabilities |
|
3.1 |
3.3 |
2.3 |
Trade and other payables |
|
22.2 |
16.1 |
14.9 |
Provision for deferred contingent
consideration |
|
- |
0.5 |
- |
Borrowings |
12 |
3.3 |
5.5 |
9.2 |
Derivative financial
instruments |
|
0.1 |
0.4 |
0.3 |
Total current
liabilities |
|
28.7 |
25.8 |
26.7 |
Non-current liabilities |
|
|
|
|
Provision for deferred contingent
consideration |
|
1.5 |
1.5 |
1.5 |
Borrowings |
12 |
- |
- |
2.6 |
Deferred income tax liabilities |
|
4.6 |
4.7 |
4.3 |
Total non-current
liabilities |
|
6.1 |
6.2 |
8.4 |
Total liabilities |
|
34.8 |
32.0 |
35.1 |
NET ASSETS |
|
108.7 |
106.9 |
98.5 |
EQUITY |
|
|
|
|
Equity attributable to equity
holders of the Company |
|
|
|
|
Share capital |
|
27.2 |
27.2 |
27.2 |
Merger reserve |
|
0.2 |
0.2 |
0.2 |
Treasury shares |
|
0.1 |
(0.5) |
(0.8) |
Hedging reserve |
|
(0.3) |
0.3 |
0.1 |
Translation reserve |
|
2.6 |
3.5 |
1.5 |
Retained earnings |
|
78.0 |
75.4 |
69.4 |
|
|
107.8 |
106.1 |
97.6 |
Non-controlling
interests |
|
0.9 |
0.8 |
0.9 |
TOTAL
EQUITY |
|
108.7 |
106.9 |
98.5 |
XP Power Limited
Consolidated Statement of Changes in
Equity
For the six months ended 30 June 2017 (Unaudited)
£ Millions
|
|
Attributable to equity holders of the Company |
|
|
|
Share
capital |
Treasury
shares |
Merger
reserve |
Hedging
reserve |
Translation
reserve |
Retained
earnings |
Total |
Non-controlling
interests |
Total
Equity |
Balance at 1 January 2016 |
27.2 |
(1.0) |
0.2 |
0.1 |
(5.3) |
67.1 |
88.3 |
0.8 |
89.1 |
Sale of treasury shares |
- |
0.1 |
- |
- |
- |
(0.1) |
- |
- |
- |
Purchase of treasury shares |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Employee share option plan
expenses |
- |
0.1 |
- |
- |
- |
- |
0.1 |
- |
0.1 |
Dividends paid |
- |
- |
- |
- |
- |
(7.4) |
(7.4) |
(0.1) |
(7.5) |
Total comprehensive income for the
period |
- |
- |
- |
- |
6.8 |
9.8 |
16.6 |
0.2 |
16.8 |
Balance at 30 June 2016 |
27.2 |
(0.8) |
0.2 |
0.1 |
1.5 |
69.4 |
97.6 |
0.9 |
98.5 |
Balance at 1 January 2017 |
27.2 |
(0.5) |
0.2 |
0.3 |
3.5 |
75.4 |
106.1 |
0.8 |
106.9 |
Sale of treasury shares |
- |
0.7 |
- |
- |
- |
(0.3) |
0.4 |
- |
0.4 |
Purchase of treasury shares |
- |
(0.2) |
- |
- |
- |
- |
(0.2) |
- |
(0.2) |
Employee share option plan
expenses |
- |
0.1 |
- |
- |
- |
- |
0.1 |
- |
0.1 |
Dividends paid |
- |
- |
- |
- |
- |
(8.0) |
(8.0) |
(0.2) |
(8.2) |
Total comprehensive income for the
period |
- |
- |
- |
(0.6) |
(0.9) |
10.9 |
9.4 |
0.3 |
9.7 |
Balance at 30 June 2017 |
27.2 |
0.1 |
0.2 |
(0.3) |
2.6 |
78.0 |
107.8 |
0.9 |
108.7 |
|
|
|
|
|
|
|
|
|
|
|
|
XP Power Limited
Consolidated Statement of Cash
Flows
For the six months ended 30 June 2017
£ Millions |
Note |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016
(Unaudited) |
Cash flows from operating
activities |
|
|
|
|
|
|
|
Total profit |
|
11.1 |
10.0 |
Adjustments for |
|
|
|
- Income tax
expense |
|
3.2 |
2.9 |
- Amortisation and
depreciation |
|
2.7 |
2.2 |
- Finance
charge |
|
0.1 |
0.1 |
- ESOP
expenses |
|
0.1 |
0.1 |
- Fair value
(gain)/loss on derivative financial instruments |
|
(0.6) |
0.3 |
- Unrealised
currency translation (gain)/loss |
|
(0.5) |
3.4 |
|
|
|
|
Change in the working capital |
|
|
|
- Inventories |
|
(0.8) |
(4.9) |
- Trade and other
receivables |
|
(1.6) |
(3.4) |
- Trade and other
payables |
|
6.1 |
0.3 |
Cash generated from
operations |
|
19.8 |
11.0 |
- Income tax
paid |
|
(3.4) |
(1.8) |
Net cash provided
by operating activities |
|
16.4 |
9.2 |
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
|
|
|
Purchases and construction of
property, plant and equipment |
|
(2.0) |
(1.2) |
Capitalisation of research and
development expenditure |
6 |
(2.0) |
(2.0) |
Repayment of ESOP loan |
|
0.3 |
- |
Payment of deferred
consideration |
|
(0.5) |
- |
Net cash used in
investing activities |
|
(4.2) |
(3.2) |
|
|
|
|
Cash flows from financing
activities |
|
|
|
|
|
|
|
Repayment of borrowings |
|
(2.7) |
(1.2) |
Sale of treasury shares by ESOP |
|
0.7 |
0.1 |
Purchase of treasury shares by
ESOP |
|
(0.2) |
- |
Interest paid |
|
- |
(0.1) |
Dividends paid to equity holders of
the Company |
|
(8.0) |
(7.4) |
Dividends paid to non-controlling
interests |
|
(0.2) |
(0.1) |
Net cash used in
financing activities |
|
(10.4) |
(8.7) |
|
|
|
|
Net increase/(decrease) in cash
and cash equivalents |
|
1.8 |
(2.7) |
Cash and cash equivalents at the
start of the period |
|
9.2 |
4.3 |
Effects of currency
translation on cash and cash equivalents |
|
(0.3) |
0.2 |
Cash and cash
equivalents at the end of the period |
11 |
10.7 |
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£ Millions |
Note |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016
(Unaudited) |
Reconciliation of changes in cash
and cash equivalents to movement in net cash/(debt) |
|
|
|
|
|
|
|
Net increase/(decrease) in cash and
cash equivalents |
|
1.8 |
(2.7) |
Repayment of borrowings |
|
2.7 |
1.2 |
Effects of currency translation |
|
(0.2) |
(0.8) |
Movement in net cash/(debt) |
|
4.3 |
(2.3) |
Net cash/(debt) at the start of the
period |
|
3.7 |
(3.7) |
Net cash/(debt) at the end of the
period |
|
8.0 |
(6.0) |
XP Power Limited
Notes to the Interim Results for the
six months ended 30 June 2017
1. General
information
XP Power Limited (the
“Company”) is listed on the London Stock Exchange and incorporated
and domiciled in Singapore. The address of its registered
office is 401 Commonwealth Drive, Lobby B #02-02, Haw Par
Technocentre, Singapore
149598.
The nature of the Group’s
operations and its principal activities is to provide power supply
solutions to the electronics industry.
These condensed
consolidated interim financial statements are presented in Pounds
Sterling (GBP).
2. Basis of
preparation
The condensed consolidated
interim financial statements for the period ended 30 June 2017 have been prepared in accordance
with the Disclosure and Transparency Rules of the United Kingdom’s
Financial Conduct Authority and with International Accounting
Standards (“IAS”) 34 Interim Financial Reporting as adopted
by the European Union.
The condensed consolidated
interim financial statements should be read in conjunction with the
annual financial statements for the year ended 31 December 2016 which have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union.
3. Going
Concern
The directors, after making enquiries, are of the view, as at
the time of approving the financial statements, that there is a
reasonable expectation that the Group will have adequate resources
to continue operating for the foreseeable future and therefore the
going concern basis has been adopted in preparing these financial
statements.
4. Accounting
policies
The condensed consolidated
interim financial statements have been prepared under the
historical cost convention except for the fair value of derivatives
in accordance with IFRS 9 Financial Instruments.
The same accounting
policies, presentation and methods of computation are followed in
these condensed consolidated interim financial statements as were
applied in the presentation of the Group’s financial statements for
the year ended 31 December 2016.
5. Segmented
analysis
The Group operates
substantially in one class of business, the provision of power
control solutions to the electronics industry. Analysis of total
Group operating profit, total assets, total revenue and total Group
profit before taxation by geographical region is set out below.
£ Millions |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016 (Unaudited) |
Revenue |
|
|
Europe |
29.4 |
24.6 |
North America |
43.7 |
30.8 |
Asia |
7.1 |
4.9 |
Total revenue |
80.2 |
60.3 |
|
|
|
5.
Segmented analysis (continued)
£ Millions |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016 (Unaudited) |
Total
assets |
|
|
Europe |
29.0 |
26.7 |
North America |
58.0 |
63.5 |
Asia |
56.1 |
43.0 |
Segment assets |
143.1 |
133.2 |
Unallocated deferred tax |
0.4 |
0.4 |
Total assets |
143.5 |
133.6 |
Reconciliation of operating
profit by segment to profit after income tax:
£ Millions |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016 (Unaudited) |
|
|
|
Europe |
7.7 |
6.0 |
North America |
14.5 |
10.4 |
Asia |
1.1 |
1.1 |
Operating profit by
segment |
23.3 |
17.5 |
Research and development cost |
(4.7) |
(2.8) |
Finance charge |
(0.1) |
(0.1) |
Corporate recovery from operating
segment |
(4.1) |
(1.7) |
Profit before income tax |
14.4 |
12.9 |
Income tax expense |
(3.2) |
(2.9) |
Profit after income tax |
11.2 |
10.0 |
The Group operates in the
following regions and countries:
£ Millions |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016 (Unaudited) |
Revenue |
|
|
North America |
43.7 |
30.8 |
United Kingdom |
15.0 |
13.0 |
Singapore |
6.0 |
4.4 |
Germany |
6.6 |
5.5 |
Switzerland |
1.5 |
2.1 |
Other countries |
7.4 |
4.5 |
Total revenue |
80.2 |
60.3 |
6. Expenses by nature
£ Millions |
Six months
ended
30 June 2017
(Unaudited)
|
Six months ended
30 June 2016
(Unaudited) |
|
|
|
Profit for the period is after
charging/(crediting): |
|
|
|
|
|
Amortisation of
intangible assets |
1.4 |
1.1 |
Depreciation of property, plant and
equipment |
1.3 |
1.1 |
Foreign exchange (gain)/loss |
(0.4) |
0.2 |
Loss/(gain) on foreign exchange
forwards |
0.2 |
(0.2) |
Purchases of
inventories |
36.9 |
19.3 |
Changes in inventories |
0.8 |
4.9 |
Fee payable to the Group’s auditor
for audit of the Group’s accounts |
0.2 |
0.2 |
Fee payable to other audit firms for
audit related services |
- |
- |
Tax fees payable to other firms for
services provided to the Group |
- |
- |
Rent/lease expense |
0.8 |
0.7 |
Finance charge |
0.1 |
0.1 |
Other charges |
24.5 |
20.0 |
Total |
65.8 |
47.4 |
Included in the above is net research and development
expenditure as follows:
£ Millions |
Six months
ended
30 June 2017
(Unaudited)
|
Six months ended
30 June 2016
(Unaudited) |
|
|
|
Gross research and development
expenditure |
5.5 |
3.8 |
Capitalisation of research and
development expenditure |
(2.0) |
(2.0) |
Amortisation of development
expenditure capitalised |
1.2 |
1.0 |
Net research and development
expenditure |
4.7 |
2.8 |
7. Taxation
Income tax expense is recognised
based on management’s best estimate of the weighted average annual
income tax expected for the full financial year. The estimated
effective annual tax rate used for 2017 is 22.2% (2016: 22.5%).
£ Millions |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016
(Unaudited) |
|
|
|
Singapore corporation tax |
2.2 |
1.3 |
Overseas corporation tax |
1.0 |
1.6 |
Total taxation |
3.2 |
2.9 |
8.
Dividends
Amounts recognised as
distributions to equity holders of the Company in the period:
|
Six
months ended
30 June 2017
(Unaudited) |
Six
months ended
30 June 2016
(Unaudited) |
|
Pence per
share |
£ Millions |
Pence per
share |
£ Millions |
|
|
|
|
|
Prior year 3rd quarter
dividend paid |
16.0 |
3.0 |
15.0 |
2.8 |
Prior year final dividend paid |
26.0 |
5.0 |
24.0 |
4.6 |
Total |
42.0 |
8.0 |
39.0 |
7.4 |
The dividends paid recognised in the interim financial
statements relate to the third quarter and final dividends for
2016.
The first quarterly dividend of 15
pence per share (2016: 14
pence) was paid on 10 July
2017. A second quarterly dividend of 16 pence per share (2016: 15 pence) will be paid on 12 October 2017 to shareholders on the register
at 15 September 2017.
9. Earnings per
share
Earnings per share attributable
to equity holders of the company arise from continuing operations
as follows:
£ Millions |
Six months
ended
30 June 2017
(Unaudited) |
Six months ended
30 June 2016
(Unaudited) |
Earnings |
|
|
Earnings for the purposes of basic
and diluted earnings per share (profit for the period attributable
to equity shareholders of the company) |
10.9 |
9.8 |
Amortisation of intangibles
associated with acquisitions |
0.1 |
0.1 |
Cost associated with abortive
acquisitions |
2.8 |
0.1 |
Tax deduction associated with
abortive acquisitions |
(0.8) |
- |
Earnings for adjusted earnings
per share |
13.0 |
10.0 |
Number of shares |
|
|
Weighted average number of shares
for the purposes of basic earnings per share (thousands) |
19,052 |
19,011 |
|
|
|
Effect of potentially dilutive share
options (thousands) |
274 |
182 |
|
|
|
Weighted average number of shares
for the purposes of dilutive earnings per share (thousands) |
19,326 |
19,193 |
|
|
|
Earnings per share from
operations |
|
|
Basic |
57.2p |
51.6p |
Diluted |
56.4p |
51.1p |
Adjusted |
67.3p |
52.2p |
The effective tax rate applied to
derive the diluted adjusted earnings per share is 23%. This is the
rate we currently expect for the year ended 31 December 2017 if there have not been any
abortive acquisition costs.
10. Intangible assets
Intangible assets comprises trademarks, brand and technology,
customer contracts, non-contractual customer relationships and
development expenditure capitalised when it meets the criteria laid
out in IAS 38 Intangible Assets.
11. Cash and cash
equivalents
For the purpose of presenting the consolidated cash flow
statement, the consolidated cash and cash equivalents comprise the
following:
£ Millions |
Six months
ended
30 June 2017
(Unaudited)
|
Six months ended
30 June 2016
(Unaudited) |
|
|
|
Cash and bank balances |
11.3 |
5.8 |
Less: Bank
overdrafts |
(0.6) |
(4.0) |
Cash and cash equivalents per
consolidated cash flow statement |
10.7 |
1.8 |
|
|
|
Reconciliation to free cash
flow: |
|
|
|
|
|
Net cash provided by operating
activities |
16.4 |
9.2 |
Purchases and construction of
property, plant and equipment |
(2.0) |
(1.2) |
Capitalisation of research and
development expenditure |
(2.0) |
(2.0) |
Interest paid |
- |
(0.1) |
Free cash
flow |
12.4 |
5.9 |
12. Borrowings, bank loans
and overdraft
£ Millions |
30 June 2017
(Unaudited) |
31 December 2016 |
30 June 2016 (Unaudited) |
Non-current |
- |
- |
2.6 |
Current |
3.3 |
5.5 |
9.2 |
Total |
3.3 |
5.5 |
11.8 |
13. Currency Impact
We report in Pounds Sterling (GBP) but have significant revenues
and costs as well as assets and liabilities that are denominated in
United States Dollars (USD). The
table below sets out the prevailing exchange rates in the periods
reported.
|
First half 2017 |
First half 2016 |
%
Change |
30 June 2017 |
31 December 2016 |
30 June 2016 |
|
Average |
Average |
|
Period end |
Period end |
Period end |
|
|
|
|
|
|
|
USD/GBP |
1.26 |
1.44 |
-12.5% |
1.27 |
1.24 |
1.33 |
EUR/GBP |
1.17 |
1.30 |
-10.0% |
1.14 |
1.19 |
1.20 |
Approximately 81% of the Group’s revenues are invoiced in USD so
the change in the USD to GBP exchange rate has a significant effect
on reported revenue in GBP. However, as the majority of our cost of
goods sold and operating expenses are also denominated in USD, the
change in profit before tax with the USD to GBP exchange rate is
relatively minor. The impact of changes in the key exchange rates
from the first half of 2016 to the first half of 2017 are
summarised as follows:
£ Millions |
USD |
EUR |
|
|
|
Impact on
revenues |
8.1 |
0.7 |
Impact on
profit before tax |
1.5 |
0.1 |
Impact on
net debt |
0.3 |
- |
|
|
|
14. Risks and
uncertainties
Like many other international businesses the Group is exposed to
a number of risks and uncertainties which might have a material
effect on its financial performance. These include:
An event that
causes a disruption to one of our manufacturing facilities
An event that results in the temporary or permanent loss of a
manufacturing facility would be a serious issue. As the Group
manufactures 75% of revenues, this would undoubtedly cause at least
a short term loss of revenues and profits and disruption to our
customers and therefore damage to reputation.
Product recall
A product recall due to a quality or safety issue would have
serious repercussions to the business in terms of potential cost
and reputational damage as a supplier to critical systems.
Shortage,
non-availability or technical fault with regard to key electronic
components
The Group is reliant on the supply, availability and reliability
of key electronic components. If there is a shortage,
non-availability or technical fault with any of the key electronic
components this may impair the Group’s ability to operate its
business efficiently and lead to potential disruption to its
operations and revenues.
Competition from
new market entrants and new technologies
The power supply market is diverse and competitive. The
Directors believe that the development of new technologies could
give rise to significant new competition to the Group, which may
have a material effect on its business. At the lower end of the
Group’s target market, in terms of both power range and programme
size, the barriers to entry are lower and there is, therefore, a
risk that competition could quickly increase particularly from
emerging low cost manufacturers in Asia.
Fluctuations of
revenues, expenses and operating results due to an economic
shock
The revenues, expenses and operating results of the Group could
vary significantly from period to period as a result of a variety
of factors, some of which are outside its control. These factors
include general economic conditions; adverse movements in interest
rates; conditions specific to the market; seasonal trends in
revenues, capital expenditure and other costs and the introduction
of new products or services by the Group, or by their competitors.
In response to a changing competitive environment, the Group may
elect from time to time to make certain pricing, service, marketing
decisions or acquisitions that could have a short term material
adverse effect on the Group’s revenues, results of operations and
financial condition.
Dependence on of
key customers/suppliers
The Group is dependent on retaining its key customers and
suppliers. Should the Group lose a number of its key customers or
key suppliers, this could have a material impact on the
Group’s financial condition and results of operations.
However, for the six months ended 30 June
2017, no one customer accounted for more than 10% of
revenue.
Cyber security /
Information systems failure
The Group is reliant on information technology in multiple
aspects of the business from communications to data storage. Assets
accessible online are potentially vulnerable to theft and customer
channels are vulnerable to disruption. Any failure or downtime of
these systems or any data theft could have a significant adverse
impact on the Group’s reputation or on the results of
operations.
Risks relating to
regulation, compliance and taxation
The Group operates in multiple jurisdictions with applicable
trade and tax regulations that vary. Failing to comply with local
regulations or a change in legislation could impact the profits of
the Group. In addition, the effective tax rate of the Group is
affected by where its profits fall geographically. The Group
effective tax rate could therefore fluctuate over time and have an
impact on earnings and potentially its share price.
14. Risks and
uncertainties (continued)
Strategic risk
associated with valuing or integrating new acquisitions
The Group may elect from time to time to make strategic
acquisitions. A degree of uncertainty exists in valuation and in
particular in evaluating potential synergies. Post-acquisition
risks arise in the form of change of control and integration
challenges. Any of these could have an effect on the Group’s
revenues, results of operations and financial condition.
Loss of key
personnel or failure to attract new personnel
The future success of the Group is substantially dependent on
the continued services and continuing contributions of its
Directors, senior management and other key personnel. The loss of
the services of key employees could have a material adverse effect
on own business.
Exposure to
exchange rate fluctuations
The Group deals in many currencies for both its purchases and
sales including US Dollars, Euros and its reporting currency Pounds
Sterling. In particular, North
America represents an important geographic market for the
Group where virtually all the revenues are denominated in US
Dollars. The Group also sources components in US Dollars and the
Chinese Renminbi. The Group therefore has an exposure to foreign
currency fluctuations. This could lead to material adverse
movements in reported earnings.
15. Directors’
responsibility statement
The interim results were
approved by the Board of Directors on 31
July 2017.
The Directors confirm that to the best of their knowledge
that:
· The unaudited interim results
have been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the European Union; and
· The interim results include a
fair view of the information required by DTR 4.2.7 (indication of
important events during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year) and DTR 4.2.8 (disclosure of related party transactions
and changes therein).
The Directors of XP Power Limited are as follows:
James Peters |
Non-Executive Chairman |
Duncan Penny |
Chief Executive |
Mike Laver |
President, World Wide Sales and
Marketing |
Jonathan Rhodes |
Finance Director |
Andy Sng |
Executive Vice President, Asia |
Terry Twigger |
Senior Non-Executive Director |
Peter Bucher |
Non-Executive Director |
Polly Williams |
Non-Executive Director |
31
July 2017