XP Power Limited
(‘XP Power’ or ‘the Group’ or ‘the
Company’)
2023 Full Year Results
Strategic progress in a challenging
year
XP Power,
one of the world's leading developers and manufacturers of critical
power control solutions for the Industrial Technology, Healthcare
and Semiconductor Manufacturing Equipment sectors, announces its
annual results for the year ended 31
December 2023 (“2023” or “the year”).
Year
ended 31 December
(£
millions unless otherwise stated)
|
2023
|
2022
|
%
change
|
At
actual exchange rates
|
In
constant
currency
|
|
|
|
|
|
Order
intake
|
208.8
|
362.9
|
(42)%
|
(43)%
|
Revenue
|
316.4
|
290.4
|
9%
|
9%
|
Book-to-bill
|
0.66x
|
1.25x
|
(0.59)x
|
|
Order
book
|
192.0
|
308.4
|
(38)%
|
|
Adjusted
results1:
|
|
|
|
|
Operating
profit
|
38.1
|
42.9
|
(11)%
|
(3)%
|
Profit
before tax
|
26.6
|
38.0
|
(30)%
|
|
Diluted
earnings per share (pence)
|
81.8p
|
160.1p
|
(49)%
|
|
Reported
results:
|
|
|
|
|
Gross
margin
|
41.5%
|
41.5%
|
-
|
|
Operating
profit/(loss)
|
24.5
|
(24.1)
|
202%
|
|
Profit/(loss)
before tax
|
11.2
|
(30.2)
|
137%
|
|
Diluted
loss per share (pence)
|
(45.3)p
|
(101.6)p
|
55%
|
|
Cash
generated from operations
|
62.4
|
2.1
|
2,871%
|
|
Net
debt
|
112.7
|
151.0
|
(25)%
|
|
Net debt :
Adjusted EBITDA
|
2.0x
|
2.7x
|
(0.7)x
|
|
1 Details
of the adjustments made and reconciliations to the reported results
can be found in note 2 of the consolidated financial
statements.
Financial
Highlights
-
Slower order intake due
to:
-
Normalisation of order
patterns after two years of unprecedented activity during COVID-19
and associated period of supply chain disruption
-
Cyclical slowdown in the
semiconductor industry after two years of strong
growth
-
Shorter delivery lead
times, which have allowed customers to place orders
later
-
Revenue growth of 9% due
to:
-
Strong growth in
Industrial Technology and Healthcare
-
Industry-wide cyclical
slowdown in Semiconductor Manufacturing Equipment from the second
half
-
All sectors benefiting
from delivery of backlog
-
Gross Margin maintained at
41.5% and protected from residual inflationary impacts with
effective price pass through
-
Adjusted Operating Profit
of £38.1 million:
-
£4.0 million of
amortisation and impairment charges booked following review of
capitalised product development costs
-
Underlying result
excluding these charges was in line with management’s
expectations
-
Net debt 25% lower than
prior year at £112.7 million:
-
Debt reduction from equity
raise
-
Record operating cash
generation, particularly strong in H2
-
Previously announced
management actions delivering expected benefits
-
Net debt : Adjusted EBITDA
reduced by 0.7x to 2.0x at year-end
Operational
Highlights
-
Product development: 11
new products launched and strategic areas, such high voltage/power
categories, growing ahead of the Group average
-
Customer development:
Improvement in project sampling activity during the year and record
new business wins
-
Supply chain performance:
significant increase in manufacturing output, reduction in delivery
lead times, and lower inventory
-
Sustainability: Net Zero
Transition Plan launched, targets approved by the SBTi, significant
reduction in emissions
-
FuG, acquired in 2022,
performing well with further growth potential
-
Comprehensive programme of
cost reduction actions commenced in Q4 2023 remains on
track
Outlook
-
As already announced, a
slowdown in order intake will affect revenue in 2024 as our order
book normalises, backlog is cleared and customers run down buffer
stocks, particularly within the Healthcare and Industrial
Technology sectors
-
Cost reductions being
implemented in response in Q1 2024, in addition to those taken in
Q4 2023
-
Expect performance in 2024
to be second half weighted, with an improvement in trading as the
year progresses
-
Group remains confident in
medium-term prospects, underpinned by our strong market position
and broad product portfolio
Gavin Griggs, Chief Executive Officer,
commented:
“2023 was
a challenging year for the Group. An industry-wide slowdown in the
Semiconductor Manufacturing Equipment market, combined with greater
than expected spending on major capex projects, led to elevated
borrowing levels in the second half of the year.
We
responded by implementing a plan of operational and funding actions
to reduce debt levels in the fourth quarter. This was a difficult
period for the Group, but the actions taken were appropriate to the
circumstances, in the long-term interests of shareholders, and had
lowered our borrowings by year-end.
Whilst the
end to the year was disappointing, our leading positions in
attractive markets and an improved supply chain performance enabled
our order backlog to be delivered, achieving revenue growth for the
year as a whole. We also made good progress strategically in areas
that will sustain our longer-term progress.
We expect
activity levels to reduce in 2024 after our record revenue
performance in 2023 and have recently taken further actions to
lower our cost base accordingly. The reduction in revenue is
largely attributable to a normalising order book, with backlogs now
largely cleared, the tail end of the semiconductor downcycle and
destocking by Healthcare and Industrial Technology customers as
they respond to greater resilience in the global supply
chain.
We expect
trading to improve as 2024 progresses, creating a second half
weighting to performance as channel stock levels reach equilibrium
and demand returns to the Semiconductor Manufacturing Equipment
market, though it is difficult to be precise about the timing of
the improvement. We will continue to take decisive action to manage
our costs and maximise cash generation during this slower trading
period, prioritising debt reduction, whilst preserving our sources
of long-term competitive advantage. We are confident that our
market positions remain strong and that the Group remains well
positioned to prosper as our key markets resume their trajectory of
healthy long-term growth.”
Enquiries:
XP
Power
Gavin Griggs, Chief Executive Officer +44
(0)118 976 5155
Matt Webb, Chief Financial Officer
+44 (0)118
976 5155
Citigate
Dewe Rogerson
Kevin Smith/Lucy
Gibbs +44
(0)20 7638 9571
XP
Power designs and manufactures power controllers, the essential
hardware component in every piece of electrical equipment that
converts power from the electricity grid into the right form for
equipment to function. Power controllers are critical for optimal
delivery in challenging environments but are a small part of the
overall customer product cost.
XP
Power typically designs power control solutions into the end
products of major blue-chip OEMs, with a focus on the Semiconductor
Manufacturing Equipment (circa 32% of sales),Industrial Technology
(circa 43% of sales) and Healthcare (circa 25% sales) and sectors.
Once designed into a programme, XP Power has a revenue annuity over
the life cycle of the customer’s product which is typically five to
seven years depending on the industry sector.
XP
Power has invested in research and development and its own
manufacturing facilities in China,
North America, and Vietnam, to develop a range of tailored
products based on its own intellectual property that provide its
customers with significantly improved functionality and
efficiency.
Headquartered
in Singapore and listed on the
Main Market of the London Stock Exchange since 2000, XP Power is a
constituent of the FTSE SmallCap Index. XP Power serves a global
blue-chip customer base from over 30 locations in Europe, North
America, and Asia.
For
further information, please visit
www.xppowerplc.com
Chair’s
Statement
Strategic
progress in a challenging year
2023 was a
year in which the Group faced unexpected challenges but delivered
some encouraging progress in key strategic areas.
The Group
entered 2023 with elevated borrowing due to various one-off
factors, including payment of damages in respect of the Comet legal
case and investment in inventory to maintain customer service
levels during the period of exceptional supply chain disruption in
2022. Strong cash generation has been a hallmark of the Group’s
historic performance and the Board expected borrowings to reduce
during the year. However, an industry-wide slowdown in the
Semiconductor Manufacturing Equipment market, combined with the
Group’s extra spending on key capex projects, made this
challenging. In October the Board acted to safeguard the Group’s
balance sheet position by implementing a funding plan, which
included cost and capex reductions, suspension of the dividend, an
issuance of new shares and the renegotiation of our banking
facilities. Suspension of the dividend was not a decision the Board
took lightly, but it was appropriate in the circumstances. In
combination, this materially reduced our borrowing and leverage by
year-end. The Board’s priority is to further reduce net debt
leverage into the Group’s previously stated range of 1-2x Adjusted
EBITDA and then in the longer-term operate in the 0-1x
range.
The
disappointing end to the year masked some more encouraging signs.
Growth for the year as a whole was healthy. We saw double-digit
growth within the Healthcare and Industrial Technology sectors,
aided by an improved supply chain performance which allowed backlog
to be delivered. Demand from the Semiconductor Manufacturing
Equipment sector moderated as the year progressed, after two very
strong years, albeit with some sub-sectors showing continued
strength.
We
continue to enjoy leading positions in attractive markets with
structural growth characteristics. They have underpinned our
historic revenue growth, which has averaged 12% per annum over the
last 10 years, and I am confident they will continue to do so for
the longer-term.
We
successfully protected our gross margins from input cost inflation
which continued to work its way through our supply chain in 2023.
Our ability to pass through inflation underlines the strength of
our brands and our market position.
Our growth
in 2023 was weighted toward higher
power and more technologically sophisticated
products, which,
in line with our strategy, are becoming an increasingly important
part of our portfolio. We deepened our relationships with key
customers by cross-selling them a wider range of products and have
a growing pipeline of new products and customer projects to drive
long-term growth. We also delivered a record level of new business
wins which will support our growth in the medium-term. Our supply
chain performance improved notably, with both delivery lead times
and inventory levels reducing materially. We made solid progress
with the transfer of production from facilities in the West to
Asia, with more to come in 2024.
While we were forced to re-locate two key sites within the
USA in early 2024, both moves are
now complete and will help to support our long-term growth. The
Group extended its customer reach in Europe by entering into a continent-wide
agreement with a leading distributor. We also delivered against our
recently launched Sustainability Strategy and invested in our
people.
Whilst the
second half of the year was challenging, I remain focused on, and
excited by, our long-term growth opportunities, which I believe we
are well positioned to seize.
Our
Board
I was
honoured to succeed James Peters as
Chair in April 2023. I would like to
take this opportunity to thank James for an immeasurable
contribution to the Group over his 35 years of service and as
founder.
After a
detailed search process as set out in the Nomination Committee
Report, Matt Webb was appointed as
the Group’s Chief Financial Officer in September 2023. Whilst still relatively new to
his role, Matt has contributed significantly, and I have no doubt
will continue to do so. I would like to thank David Stibbs for fulfilling the CFO role on an
interim basis whilst the search process was completed, and I am
delighted he remains with us.
Our
People and
Our Values
The
success of any organisation is dependent on its culture and the
people and talent within it. The Board engages regularly with the
Executive Leadership Team and colleagues throughout the Group to
ensure we are continuing to identify and develop our key people and
bring new talent and capabilities into the business to help
underpin our growth ambitions.
As
previously announced, the Group restructured its cost base in the
second half of the year in response to weakening demand.
Restructuring actions were taken promptly to safeguard the future
progress of the Group, whilst dealing compassionately and openly
with those impacted. I would like to thank our employees for all
their hard work throughout the year, but particularly for their
support and forbearance whilst the restructuring plan was
implemented.
As I
travel across the Group, I am continually impressed by the skill,
experience and enthusiasm of members of the XP team, which only
increases my confidence in our long-term prospects and
potential.
Jamie Pike
Chair
Chief
Executive Officer’s Review
Review
of our year
The Group
delivered revenue of £316.4 million in 2023, 9% higher than prior
year in constant currency. Over the last 10 years, revenue growth
has been consistently strong, averaging 12% per annum, as we have
amassed a growing share of attractive markets with healthy,
long-term growth attributes.
Revenue
growth was strongest in the first half of 2023, at 24% in constant
currency, as an improved supply chain performance allowed us to
deliver our order backlog. Revenue grew significantly in all three
of our market sectors in this period: Semiconductor Manufacturing
Equipment, Industrial Technology and Healthcare.
The pace
of progress moderated as the year progressed. Second half revenue
was 2% lower than prior year in constant currency as we faced
tougher comparatives and began to experience the impact of the
industry-wide slowdown in demand from the semiconductor equipment
market after three strong years. Slower market conditions prompted
some semiconductor customers to cancel or defer deliveries at the
start of the second half, but delivery schedules have remained firm
since. Sales to Industrial Technology and Healthcare customers
continued to grow, albeit at a reduced pace.
We started
2023 with an elevated order book of £308.4 million, reflecting both
strong demand and a supply chain limited by component shortages in
previous years. Our order intake reduced to £208.8 million in 2023
(2022: £362.9 million) following two years of unprecedented
activity levels in the aftermath of COVID-19, representing a
book-to-bill of 0.66x. This reflected the slowdown in the
Semiconductor Manufacturing Equipment market and growing confidence
in supply chain performance, allowing customers to place orders
later, remove buffer inventory and reduce safety stocks of our
products. However, the slowdown in order intake had very little
impact on our 2023 revenue, which continued to be supported by the
delivery of the backlog brought into the year. It is encouraging to
see that our design wins continued and we achieved a record level,
7% ahead of the previous record year. This combined with continued
strong sampling rates supports our medium-term outlook.
The
slowdown in sales in the second half of the year, combined with
unexpected additional investment in the relocation of two key US
sites, initially left our net debt materially above our target
leverage range of 1-2x Adjusted EBITDA with insufficient borrowing
headroom versus our banking covenants. We responded by implementing
a comprehensive funding plan in October
2023, described in more detail in the Chief Financial
Officer’s Review. I believe the plan was appropriate to the
circumstances and in the Company’s best long-term interests. The
plan had materially lowered our borrowing and leverage by year-end
and we are continuing to prioritise debt reduction in 2024. We
should have been better prepared to withstand the trading
challenges we have faced and I am therefore focused on taking the
steps necessary to navigate this challenging period and build
greater operational resilience. In the longer-term, we aim to
reduce our leverage range to 0-1x Adjusted EBITDA.
The
reduction in borrowing and leverage delivered in the second half
was supported by strong operating cash generation, with operating
cash conversion of 218% in H2 and 173% for the year as a whole. The
strong progress towards the end of the year was aided by inventory
reduction, which was particularly pleasing to see given it is an
important element of our debt reduction plan.
Sales
toward the end of 2023 were slightly above our expectations, due
largely to our decision to reschedule the relocation of our
facility in California from
December 2023 to January 2024, which had the effect of bringing
forward some deliveries into late 2023.
Following
a thorough review, we identified some capitalised product
development costs that needed to be amortised or impaired, adding a
non-cash charge of £4.0 million to costs. These costs are discussed
in more detail in the Chief Financial Officer’s Review. This left
full year Adjusted operating profit at £38.1 million. These costs
had no impact on cash or borrowing leverage ratios.
Revenue
by market
Group
revenue grew by 9.0% to £316.4 million, including constant currency
growth of 9.3%, and (0.3)% from currency movements.
The
breakdown of revenue growth by sector was as follows:
|
% of
Group
revenue
|
Revenue
growth
/
(decline)
%
|
|
|
|
Semiconductor
Manufacturing Equipment
|
32%
|
(9.7%)
|
Industrial
Technology
|
43%
|
13.8%
|
Healthcare
|
25%
|
37.2%
|
Total – In
constant currency
|
100%
|
9.3%
|
|
|
|
Currency
movements
|
|
(0.3%)
|
Total
|
|
9.0%
|
Semiconductor
Manufacturing Equipment
Sales to
the Semiconductor Manufacturing Equipment sector grew by 5% in
constant currency in the first half of the year as we delivered a
backlog of orders built up in the preceding two years. Sales
declined by 22% year-on-year in the second half against a tough
comparative, reflecting the cyclical slowdown in semiconductor
investment spending, leaving revenue 9.7% lower for the full year.
Our performance was helped by our over-weight positions in more
resilient sub-sectors such as deposition, etch and trailing edge
chip manufacture which were less impacted by the slowdown. Order
intake in the year totalled £59.4 million and book-to-bill was
0.58x.
Whilst the
overall market softened, there were pockets of continued strength.
We increased production of our high voltage high power range by
nearly 50% to meet high demand, with a further increase planned for
2024.
The US and
Chinese governments tightened controls over the export of
semiconductor manufacturing equipment in the year. Whilst very few
of our sales are directly impacted by these controls, their
introduction did disrupt the production of one of our key customers
in China, with sales slowing
whilst the necessary permits were sought. The ongoing uncertainty
is an issue the Group will seek to navigate but it will limit
expansion in China for some of our
product portfolio.
The
prospects for this sector are very attractive and we continue to
expect long-term market growth averaging 10% per annum, underpinned
by the manufacturing expansion required to keep pace with future
demand for technologies such as AI, IoT and electrified
transportation. Given our customer exposure, we expect to grow
ahead of the market. Whilst sales into this sector are likely to
remain subdued in the first half of 2024, we continue to expect to
see an improvement in order intake in the second half and a
stronger performance in 2025.
Industrial
Technology
Sales to
the Industrial Technology sector grew by 26% in constant currency
in the first half of the year and 4% in the second half.
Increased
manufacturing output allowed us to clear order backlog and restock
the sales channel, supporting revenue throughout the year. Order
intake in the year was £92.4 million and the book-to-bill was 0.68x
following a slowdown in intake during the second half.
During the
year, we signed a sales agreement with a leading, pan-European
“design in” distributor, simplifying our European distribution
arrangements and increasing our ability to bid on small to
medium-sized customer projects, to allow our own sales team to
focus on larger accounts. With the new structure in place, we now
have the right platform for long-term growth, particularly within
the Industrial Technology sector.
Healthcare
The
Healthcare sector saw a reset in 2022 after two preceding years of
strong demand for products used in the treatment of critical
illnesses particularly COVID-19 during the pandemic. We were
therefore pleased to see activity levels recover strongly in 2023,
with a more normal mix of end uses. This resulted in revenue growth
of 37% for the year in constant currency, the highest of any
sector. Activity remained strong throughout the year.
Progress
was strongest in North America as
we switched more of our manufacturing capacity toward the
fulfilment of orders from the Healthcare sector as the
semiconductor equipment market cooled. Order intake for the year
was £57.0 million and the book-to-bill was 0.73x. Order intake
slowed toward the end of the year, with customers reporting excess
inventories in early 2024. As global supply chains have normalised
for the first time post-COVID, customers are now focused on
reducing their inventory levels.
Regional
Performance
Sales to
North America totalled £184.5
million, up 11% in constant currency. The region saw strong growth
within the Healthcare sector, with sales to customers in the
semiconductor market slowing after two strong years, particularly
within low voltage product categories.
Sales to
Europe totalled £97.8 million, up
13% in constant currency, with all three market sectors growing.
This included record sales from FuG, a business acquired by the
Group in 2022. As highlighted at the time of acquisition, we are
supporting the future progress of this business by using our sales
team to increase its global reach.
Sales to
Asia totalled £34.1 million, down
6% in constant currency due largely to reduced demand from the
Asian Semiconductor Manufacturing Equipment market. This was
largely attributable to permitting issues experienced by one
Chinese customer, which we hope will be resolved in due
course.
Delivery
of our strategy in the year
Our vision
is to be the first-choice power solutions provider and deliver the
ultimate experience for our customers and our people. Over time we
have expanded our product portfolio up the power and voltage scale
to provide our customers with a broader offering to meet their
power needs. We have added high voltage and radio frequency (“RF”)
technology and increased our engineering resource to provide
enhanced engineering services capabilities and deliver a complete
power solution to our key customers. We are now one of few
providers who can offer customers a complete spectrum of power and
voltage capabilities and package several power converters into an
overall solution customised to the customer’s specific application.
This makes us an attractive partner to our key customers and is a
key driver of our market share gains.
Our
strategy is summarised as follows:
-
Product development:
Continually develop our market leading range of competitive
products, both organically and through selective
acquisitions;
-
Customer development:
Target customer accounts where we can add value and increase our
penetration of those target customers;
-
Supply chain development:
Continually improve our global, end-to-end, supply chain, balancing
high efficiency with market leading customer responsiveness;
and
-
Sustainability: Lead our
industry on environmental responsibility
We made
progress with our strategic priorities during the year and remain
well-positioned to benefit as demand improves. Our progress in the
year is summarised below.
Product
development
Product
development is a key source of our competitive advantage. The XP
brand is synonymous with high quality, high functioning and
reliable power solutions. It is important that we continually
invest to ensure we are offering a broad, up-to-date range of power
supplies that meet our customers’ demanding performance
requirements. We work closely with them to ensure our power supply
is “designed in” at an early stage of their own product development
cycle, with high re-engineering and re-certification costs
providing a natural barrier to competition thereafter. The
“designed in” nature of the sale results in an annuity revenue
stream throughout our customer’s product life cycle, which is
typically 5-7 years but can be much longer.
Our
product development capabilities include Engineering Services
teams, most notably in North
America and Asia. Located
close to the customer, these teams enable the rapid deployment of
customised power solutions for individual customers to speed up
their own product development process. This a high margin, high
growth proposition.
A key
aspect of our product strategy over recent years has been to expand
into higher power and higher voltage supply categories through
selective bolt-on acquisitions, to complement our heritage in lower
power areas. The most recent example is the acquisition of FuG,
which performed well during 2023.
Our
progress in the year can be summarised as follows:
-
We launched 11 new
products. These included a programmable 3kW power supply series
which brings high power with digital control to demanding medical
and industrial applications.
-
Our Engineering Services
group delivered 39 new customised products to customers. Our
Engineering Services team in the USA was relocated to a larger, state of the
art facility to support future growth.
-
Sales of high voltage,
high power and RF products grew by 19%, faster than the Group
average.
-
FuG and Guth delivered
record revenue, 6.4% higher than 2022 after adjusting for our
period of ownership.
-
The pipeline for new
products is strong and we expect to bring new platform products to
market across our portfolio in the next 12-18
months.
Whilst
reductions were made during the year in certain overhead functions,
as discussed in detail in the Chief Financial Officer’s Review, we
were careful to maintain our investment in product development to
support future growth.
Customer
development
We work
with leading OEMs in each of the three market sectors we serve.
Relationships are deep and enduring and our customers recognise us
for our superior quality, reliability, responsiveness and
flexibility. Our sales teams are tasked with identifying new
customers who would benefit from our unique business model and
maximising our share of each customers’ product power
needs.
Our
progress on customer development in the year can be summarised as
follows:
-
The value of new projects
won grew by 7% year-on-year to a record level, which will translate
into growth over the medium term as these products enter
production.
-
Sampling, a key stage in
the new design win process, remains strong for the third year in a
row following a dip during the pandemic. Customers resumed new
product development work after a period in which their engineering
efforts were focused on redesigning existing products to combat
component shortages.
-
We invested in digital
marketing by re-platforming our website and improving our presence
in online search.
-
As referred to above, we
signed a new European distribution agreement.
Supply
chain development
After two
challenging years, our supply chain performance improved
considerably in 2023, in terms of service, resilience and
efficiency.
Our order
book reduced by £116.4 million in the year to £192.0 million. While
our order backlog reduced considerably during 2023 it remains above
pre-COVID levels. We expect our order book to return to historic
norms by the end of the first half of 2024.
Delivery
lead times reduced considerably during the year, improving customer
service. Shorter manufacturing lead times reduced the need for air
freight, reducing costs and minimising environmental
impact.
We added
resilience to our supply chain by increasing production
flexibility. 71% of the products we manufacture in Asia can now be made in either our
China or Vietnam factories. We now have multiple
sourcing options for more of our critical components and more of
our components can be sourced on a returnable basis should demand
change unexpectedly.
We
improved efficiency in terms of capital intensity. It was pleasing
to see inventory reduce by £22.8 million to £91.6 million in the
year, with progress weighted towards the fourth quarter. We also
saw a reduction in both raw materials and work in progress, as
expected. Reductions in finished goods should follow as the
benefits flow through our supply chain, subject of course to
demand. The progress we have made in this area was aided by recent
investments in our Enterprise Resource Planning system, which
provides end-to-end visibility of demand to enable us to plan our
supply requirements more efficiently. We have also renegotiated
better supplier terms where appropriate, in terms of both pricing
and payment, preserving cash.
Slower
demand allowed us to defer construction of our new facility in
Malaysia by one year, preserving
cash, with commissioning now expected by the end of 2025. We expect
our existing manufacturing sites to have sufficient capacity to
meet demand in the meantime.
Higher raw
material prices gradually worked their way into our finished goods
inventory, increasing our cost of goods sold. We successfully
passed this inflation through, protecting margins, with roughly
half of our revenue increase attributable to price. We have seen
lower component prices in the last six months, which should support
margins going forward.
We are
monitoring events in the Red Sea closely. The impact on freight
costs has been very modest so far, given that this route is less
important to the Group than deliveries across the Pacific. We have
sufficient finished goods inventory to accommodate longer transit
times if deliveries route via southern Africa and a proven ability to re-price
quickly should freight costs increase sustainably.
Sustainability
Sustainability
is a key part of our strategy and has been since 2009, when the
Group first formed its Sustainability Council. We realised early
how important this would be over time to our customers, investors
and people.
We set out
and publish our priorities in our annual Sustainability Report. We
delivered as follows against these priorities in 2023:
-
We published our Net Zero
Transition Plan.
-
Our emission reduction
targets were recently approved by the Science Based Targets
Initiative (“SBTi”).
-
We significantly reduced
our Scope 2 Greenhouse Gas emissions in the year by acquiring
rights to locally sourced renewable electricity.
-
We introduced 10 XP Green
Power product families in 2023. XP Green Power products generated
revenues of £67.1 million in 2023, 13% higher than last year. The
estimated lifetime savings from the XP Green Power products shipped
in 2023 is 140,300 tonnes of CO2.
Our
progress has not gone unrecognised. In 2022 we were delighted to
receive the first ESG award from Lam Research, a leading global
supplier of semiconductor manufacturing equipment and one of our
largest customers, recognising us for our commitment to strong ESG
goals and proactively aligning with Lam on these priorities. This
follows the PRISM award we received from ASM in 2021 for
sustainability.
We
continue to support our employees through training and development,
promoting a fair working environment with equal opportunities, and
see mental health as a priority. Through workforce engagement,
views are heard at Board level.
Litigation
Update
As
previously reported, in March 2022,
an award for damages was made against XP for a total of
$40 million in respect of a US legal
action brought by Comet Technologies USA Inc., Comet AG, and YXLON International
(“Comet”).
Our appeal
against the original ruling, which we believe to be well founded,
was filed with the Appellate Court in August
2023 and we have been responding in line with the Appellate
Court’s timeline. We expect the appeal to be heard during
2024.
Judgement
has yet to be received in respect of Comet’s claim for legal fees
and interest associated with the case. It is expected
soon.
We
incurred legal fees of £2.1 million in 2023 and these are reported
as an Adjusting item per note 2 to the consolidated financial
statements.
While we
believe we have provided for the worst-case situation, with the
pending judgements and future appeals there remain a broad range of
potential outcomes. Further updates will be provided as and when
the current position changes.
Outlook
We expect
activity levels to reduce in 2024 after our record revenue
performance in 2023 and have recently taken further actions to
lower our cost base accordingly. The reduction in revenue is
largely attributable to a normalising order book, with backlogs now
largely cleared, the tail end of the semiconductor downcycle and
destocking by Healthcare and Industrial Technology customers as
they respond to greater resilience in the global supply
chain.
We expect
trading to improve as 2024 progresses, creating a second half
weighting to performance as channel stock levels reach equilibrium
and demand returns to the Semiconductor Manufacturing Equipment
market, though it is difficult to be precise about the timing of
the improvement. We will continue to take decisive action to manage
our costs and maximise cash generation during this slower trading
period, prioritising debt reduction, whilst preserving our sources
of long-term competitive advantage. We are confident that our
market positions remain strong and that the Group remains well
positioned to prosper as our key markets resume their trajectory of
healthy long-term growth.
Gavin Griggs
Chief
Executive Officer
Chief
Financial Officer’s Review
Statutory
Results
The
statutory operating profit was £24.5 million, compared with a loss
of £24.1 million in the prior year, with the 2022 loss primarily
driven by the damages and legal costs from the Comet
case.
Net
finance expense was £13.3 million (2022: £6.1 million), resulting
in a profit before tax of £11.2 million (2022: loss of £30.2
million). The higher net finance expense reflects the higher
average debt and increased interest rates. This resulted in an
income tax charge of £20.2 million compared to a £10.6 million
credit in 2022. The basic loss per share was 45.4 pence whereas in 2022 the Group had a loss
per share of 102.0 pence.
Adjusted
Results
As in
prior years, Adjusted and other alternative performance measures
are used in this announcement to describe the Group’s results.
These are not recognised under International Financial Reporting
Standards (IFRS) or other generally accepted accounting principles
(GAAP).
Adjustments
are items included within our statutory results that are deemed by
the Board to be unusual by virtue of their size or incidence. Our
Adjusted measures are calculated by removing such Adjustments from
our statutory results. The Board believes Adjusted measures help
the reader to understand XP Power’s underlying results and are used
by the Board and management team to interpret Group performance.
Note 2 to the consolidated financial statements includes
reconciliations of statutory metrics to their Adjusted equivalent
and provides a breakdown of the Adjustments made.
Revenue
Revenue
grew by 9.0% to £316.4 million (2022: £290.4 million).
Growth
consisted of constant currency growth of 9.3% and an adverse
currency movement of 0.3%.
The year
started strongly, with constant currency growth of 24% in the first
half thanks to an improved supply chain performance which allowed
us to reduce our order backlog and restock the sales channel. It
moderated as the year progressed, with second half revenue 2% lower
than prior year in constant currency, as we reached robust
comparatives and as sales into the Semiconductor Manufacturing
Equipment market inevitably cooled after two years of strong
demand. Sales into Industrial Technology and Healthcare sectors
grew throughout the year.
The
Group’s revenue by region and by sector for 2023 is set out in the
table below:
|
2023
£
million
|
%
change
in
constant
currency
|
|
|
|
North
America
|
|
|
Semiconductor
Manufacturing Equipment
|
86.0
|
(8.2%)
|
Industrial
Technology
|
54.0
|
20.8%
|
Healthcare
|
44.5
|
56.6%
|
Total
|
184.5
|
10.7%
|
|
|
|
Europe
|
|
|
Semiconductor
Manufacturing Equipment
|
3.4
|
25.9%
|
Industrial
Technology
|
67.6
|
10.3%
|
Healthcare
|
26.8
|
19.1%
|
Total
|
97.8
|
13.1%
|
|
|
|
Asia
|
|
|
Semiconductor
Manufacturing Equipment
|
12.8
|
(23.7%)
|
Industrial
Technology
|
14.7
|
7.0%
|
Healthcare
|
6.6
|
12.2%
|
Total
|
34.1
|
(6.2%)
|
North America and Asia were
both impacted by the slowdown in Semiconductor Manufacturing
Equipment demand. The impact in Asia was greater as a key customer experienced
manufacturing delays whilst it adapted to industry-wide export
controls. The impact in North
America was largely confined to low voltage categories, with
sales of high voltage and RF products continuing to grow, which is
encouraging given their strategic importance.
North America was able to more than offset the impact of the
semiconductor downcycle with very strong growth in Industrial
Technology and Healthcare sales, to deliver double-digit revenue
growth overall. This included some deliveries brought forward into
2023 from January 2024 to maintain
continuity of service whilst we relocated our California facility at the end of its
lease.
Europe delivered strong growth in each market sector,
particularly in the Industrial Technology sector aided by healthy
sales into our distributors as they restocked their
networks.
Order
intake
Order
intake was £208.8 million, 43% lower than last year in constant
currency. Book-to-bill in 2023 was 0.66x.
Order
intake by quarter 2023 £ million
|
Q1
|
Q2
|
Q3
|
Q4
|
Full
Year
|
|
|
|
|
|
|
Order
intake
|
61.2
|
54.4
|
44.2
|
49.0
|
208.8
|
|
|
|
|
|
|
Order
intake within the Semiconductor Manufacturing Equipment sector was
relatively slow throughout the year and was the largest contributor
to the Group’s overall year-on-year reduction. Order intake within
this sector increased in the fourth quarter due to large orders for
high voltage high power products on longer lead times, for which
demand remains strong.
Order
intake within the Healthcare and Industrial Technology sectors
started 2023 strongly but moderated later in the year. We initially
attributed this moderation to shorter delivery lead times, which
were allowing customers to raise orders later, slowing their rate
of order placement. We expected order intake to improve in early
2024 as delivery lead times reached a minimum. This has not been
seen to date because customers are also placing fewer orders to
reduce their overall inventory of our products, which will hold
back our activity levels temporarily in 2024 whilst the extra
inventory is utilised.
Order
book
Our order
book reduced by £116.4 million in the year to £192.0 million at
31 December 2023 as backlog was
shipped and delivery lead times reduced.
Gross
margin
Gross
margin was maintained at 41.5% (2022: 41.5%). In 2023, we sold
finished goods that were sourced and manufactured when global
supply chain disruption pushed input prices to a peak. Products
were appropriately re-priced in response, protecting our margins
from inflation. We have seen reductions in input costs over recent
months, which should support margins going forward.
Freight
costs halved as sea container prices returned to historic norms and
shorter manufacturing lead times reduced the need for air
freight.
Production
output increased. In our Asian plants, this resulted in improved
cost efficiency. In our smaller facilities in the United States, the need for greatly
increased output introduced some inefficiency which we are
addressing by transferring some production to Asia where manufacturing capacity is greater
and costs are lower.
Operating
expenses
Statutory
operating expenses reduced by £37.9 million to £106.8 million due
largely to lower costs in respect of the Comet legal case, which
have been treated as an Adjustment.
Adjusted
operating expenses increased by £15.5 million to £93.2
million.
The
increase comprised the following main items:
-
c.£2.0 million of cost
inflation
-
£3.1 million of increased
variable pay, including share-based payment accounting
charges
-
£3.0 million of adverse
currency movements
-
£6.1 million of increased
product development costs, which are discussed in more detail
below
The cost
base was restructured in the second half following a slowdown in
demand, as part of the wider funding plan described below. Whilst
2024 will bring inflationary increases and an extra depreciation
on-cost associated with the relocation of two leased premises in
the US, we still expect our restructuring plans to drive a material
reduction in overheads year-on-year.
Operating
profit
Statutory
operating profit increased by £48.6 million to £24.5 million due
largely to items considered to be Adjustments, as set out later in
this Review.
Adjusted
operating profit reduced by £4.8 million to £38.1 million and is
bridged as follows:
|
2022
|
Currency
impact
|
Constant
currency
|
2023
|
Adjusted £
million
|
Revenue
|
290.4
|
(1.1)
|
27.1
|
316.4
|
Revenue
growth %
|
|
(0.3)%
|
9.3%
|
9.0%
|
Cost of
sales
|
(169.8)
|
0.6
|
(15.9)
|
(185.1)
|
Gross
margin
|
120.6
|
(0.5)
|
11.2
|
131.3
|
Gross
margin %
|
41.5%
|
-
|
-
|
41.5%
|
Operating
expenses
|
(77.7)
|
(3.0)
|
(12.5)
|
(93.2)
|
Operating
profit
|
42.9
|
(3.5)
|
(1.3)
|
38.1
|
Operating
margin %
|
14.8%
|
(1.2)%
|
(1.6)%
|
12.0%
|
The impact
of currency movements on profit is largely translational rather
than transactional and reflects unusually large movements in the
value of Sterling versus the US dollar over the last two years.
Steps were taken in late 2023 to reduce this impact going
forward.
Whilst the
impact of the FuG and Guth businesses acquired in 2022 has not been
separately reported as they were owned for almost all of 2022, it
is worth noting that on a comparative basis they grew at a healthy
rate, with some of the proceeds from this growth reinvested in the
cost base to sustain progress into 2024. Both businesses have
leading product portfolios and a well-earned reputation for
expertise and quality. We are confident we can sustain their
progress as they increasingly leverage the wider Group’s
resources.
Profit
declined modestly in constant currency. A slowdown in activity
levels in the second half meant that growth did not fully support
overhead investments previously made, leading to the restructuring
actions referenced above. The result was also impacted by the
product development cost increase described below. We will continue
to keep our overhead base under close review, to ensure it is both
affordable in the short-term and sufficient to drive our long-term
progress.
Product
development costs
Product
development is central to the Group’s long-term strategy. The Chief
Executive Officer’s Review sets out the progress made in the
year.
Our
accounting policy is to capitalise product development costs where
they meet criteria prescribed by International Financial Reporting
Standards, then start to amortise the capitalised costs when
development activity is complete.
The
following table summarises the accounting entries for product
development costs recorded in the year:
Adjusted
costs £ million
|
2023
|
2022
|
Change vs
2022
|
|
|
|
|
Gross
product development costs
|
27.3
|
24.3
|
3.0
|
Of which:
capitalised in the year1
|
(7.8)
|
(7.3)
|
(0.5)
|
Amortisation
of capitalised costs
|
5.0
|
3.3
|
1.7
|
Impairment
of capitalised costs
|
1.9
|
-
|
1.9
|
Net
product development costs charged to Adjusted operating
profit
|
26.4
|
20.3
|
6.1
|
1 Excluding
capitalised interest costs
|
|
|
|
The
Group’s development activities divide into two areas: i)
traditional development of new products for the mass market and ii)
Engineering Services work, where customised products are developed
for a specific customer.
Our gross
spending on product development activities increased by £3.0
million to £27.3 million in the year.
Our rate
of capitalisation was broadly unchanged in the year at £7.8
million. We take a conservative approach to capitalising, only
doing so when we are certain exploratory work has transitioned to
become a technically and commercially viable development
project.
Following
a review, a non-cash charge of £1.9 million was recorded to impair
previously capitalised development costs. This relates to certain
Engineering Services projects where the value deemed to be
recoverable from future sales to the customer does not support the
carrying amount. This impacts a small number of projects in an
otherwise commercially successful area.
The same
review recommended a change to the way in which we judge when
amortisation should start. Some Engineering Services projects
follow an iterative development process, in which the customer
requests rolling design changes to launched products, making it
harder to judge when development has ended, commercial sales have
started, and therefore when amortisation should commence – our new
approach makes this clearer. The year-on-year increase in
amortisation is £1.7 million and we expect this increased run-rate
for amortisation to continue in future years.
Neither
the impairment nor the increase in amortisation has any impact on
cash, EBITDA or leverage calculations.
Adjusted
net finance expense
Adjusted
net finance expense increased to £11.5 million (2022: £4.9 million)
as a result of higher levels of average debt and a rising Fed Funds
rate.
Cash on
deposit across the Group reduced materially in the year to minimise
borrowing costs.
To manage
interest rate risk, we recently capped the interest rate applicable
to the majority of our borrowings at a rate slightly above current
SOFR.
Tax
and earnings per share
The
effective tax rate applicable to Adjusted profit before tax was
37%, higher than prior year.
The rate
increase included a one-off element and was caused by challenges in
obtaining full benefit from available tax losses and credits in our
US business, which resulted in a write down to deferred tax assets.
We aim to make changes to our tax structure to improve this
situation and therefore the future tax rate.
Adjusted
basic and Adjusted diluted earnings per share decreased by 49% to
81.9 pence and 49% to 81.8 pence respectively (2022: 160.6 pence and 160.1
pence).
Adjustments
In 2023,
the Group incurred costs of £15.4 million (2022: costs of £68.2
million) which we consider to be Adjustments and have therefore
excluded them when calculating Adjusted profit before tax. These
are summarised below:
Income /
(cost) impact by
Income
Statement line
£
million
|
2023
|
2022
|
Operating
profit
|
Net
finance expense
|
Profit
before tax
|
Operating
profit
|
Net
finance expense
|
Profit
before tax
|
Restructuring
costs
|
(2.7)
|
-
|
(2.7)
|
-
|
-
|
-
|
Site
double running costs
|
(2.6)
|
(2.4)
|
(5.0)
|
-
|
-
|
-
|
Supply
chain transformation
|
(2.7)
|
-
|
(2.7)
|
-
|
-
|
-
|
Comet
legal case
|
(2.1)
|
-
|
(2.1)
|
(59.7)
|
-
|
(59.7)
|
Amortisation
of acquired intangibles
|
(3.2)
|
-
|
(3.2)
|
(4.1)
|
-
|
(4.1)
|
ERP
implementation
|
(0.3)
|
-
|
(0.3)
|
(3.8)
|
-
|
(3.8)
|
Acquisition
costs
|
(0.1)
|
-
|
(0.1)
|
(2.4)
|
-
|
(2.4)
|
Other
|
0.1
|
0.6
|
0.7
|
3.0
|
(1.2)
|
1.8
|
Total
|
(13.6)
|
(1.8)
|
(15.4)
|
(67.0)
|
(1.2)
|
(68.2)
|
Restructuring
costs of £2.7 million include severance payments of £1.8 million,
product development write-offs of £0.4 million and a provision of
£0.5 million for IT licences that will no longer be used as a
result of our restructuring.
Site
double running costs totalling £5.0 million arose from the
relocation of two leased facilities in California. The lease cost of the new
facilities, which under IFRS are accounted for as depreciation and
interest, were treated as Adjustments from the start of the lease
to the date of initial occupation. The interest element of the
lease cost was £2.4 million with the depreciation and other double
running costs totalling £2.6 million. Both facilities are now
occupied.
In the
Notes to the consolidated financial statements, restructuring costs
and site double running costs have been aggregated as a total of
£7.7 million, with £5.3 million impacting Operating Profit and an
additional £2.4 million impacting Net finance expenses.
Supply
chain transformation costs of £2.7 million relate to initial design
work for our planned factory in Malaysia and temporary engineering resources
employed to transfer manufacturing from the West to Asia.
The Chief
Executive Officer’s Review provides an update on the Comet legal
proceedings. The cost of £2.1 million in 2023 largely relates to
legal fees incurred in filing our appeal in the case. This is
significantly lower than the £59.7 million charged in 2022, which
comprised £52.2 million of costs directly relating to the dispute
and an associated intangible asset impairment of £7.5
million.
Adjusting
items also includes a tax charge of £10.4 million. This includes a
£3.2 million tax credit in respect of the costs above plus a £13.6
million charge relating to the Comet legal case. The latter entry
reverses a tax credit of £13.6 million booked in the prior year. In
2022, we assumed we would be able to deduct the Comet legal
settlement cost from taxable profit in the US. We now recognise
this will be challenging for the reasons set out in the previous
section.
Other
items include a £0.1 million charge relating to fair value gain on
derivative financial instruments (2022: £0.1 million charge)
impacting operating profit. In addition, there is a £0.6 million
gain (2022: £1.0 million loss) relating to modification of
Revolving Credit Facility impacting net finance expense. In 2022,
there was also a £3.2 million foreign exchange gain on the
Euro-denominated loan relating to the FuG and Guth
acquisitions.
We
challenge ourselves to keep the list of Adjustments to an
appropriate minimum. It is very important that we continue to do
such that the gap between Adjusted and Reported results is as
narrow as possible going forward.
Free
Cash Flow
Reported £
million
|
2023
|
2022
|
Operating
profit / (loss)
|
24.5
|
(24.1)
|
Depreciation,
amortisation & impairment
|
22.6
|
25.4
|
EBITDA
|
47.1
|
1.3
|
Change in
working capital
|
14.0
|
(33.5)
|
Provision
for Comet legal case
|
-
|
46.9
|
Other
items
|
1.3
|
(12.6)
|
Operating
cash flow
|
62.4
|
2.1
|
Net
capital expenditure – Product development costs
|
(9.5)
|
(8.0)
|
Net
capital expenditure – Other assets
|
(30.5)
|
(11.4)
|
Purchase
of bond receivable for Comet legal case
|
-
|
(36.9)
|
Net
interest paid
|
(11.9)
|
(5.5)
|
Tax
paid
|
(4.9)
|
(4.1)
|
Other
items
|
(2.3)
|
(5.8)
|
Free
cash flow
|
3.3
|
(69.6)
|
Cash
generated from operations increased significantly in the year,
particularly in the second half. This arose almost exclusively from
working capital. Working capital reduced by £1.2 million in the
first half and £12.8 million in the second half, reflecting efforts
to reduce raw material inventory and work in progress. Stock levels
reduced by £22.8 million in the year to £91.6 million, with the
closing balance representing 181 inventory days. Further
optimisation is expected.
The
additional operating cash flow was absorbed by increased capital
expenditure and debt interest payments.
Capital
expenditure on property, plant, equipment and software totalled
£30.5 million (2022: £11.4 million). This included investment in
two new sites in California and
construction of a new factory in Malaysia. The leases for the previous sites in
California expired and we were not
able to extend them, necessitating relocating to new leased
premises, with associated refurbishment and fit out. The total
capex cost of these new sites is expected to be £24.2 million, with
£16.6 million spent in 2023 and the balance due in 2024. The
Malaysia site remains an important
long-term investment to provide flexible low-cost manufacturing
capacity. Construction of the facility was suspended in late 2023.
Total spend in 2023 was £6.0 million, with a residual amount of
£3.0 million to be paid in early 2024 for contracted work up until
the point of suspension. Minimal capex spend is expected on the
project thereafter until early 2025. Residual payments from 2023’s
major projects are expected to result in capital expenditure of
approximately £25 million in 2024, including capitalised product
development costs.
Funding
plan
The Group
started 2023 with relatively high borrowing, with net debt
equalling 2.7x Adjusted EBITDA. The market slowdown in the second
half, combined with spending on major projects above, made it
challenging for the Group to de-lever. We responded in late 2023 by
implementing a comprehensive funding plan. This consisted of three
elements: management actions, amendments to the Group’s borrowing
facility and a share placing.
Management
actions
Management
actions consisted of:
-
Headcount reductions and
restrictions on discretionary spend, with an expected full year
benefit to EBITDA of £8-10 million.
-
Expected inventory
reduction of £10-20 million by the end of 2025
-
Standardisation of
supplier payment terms
-
Capex reduction to
discretionary levels
-
Dividend
suspension
Cost
reduction actions have now been taken and the benefit is tracking
in the middle of the expected range. Further actions being taken at
the time of this report are expected to lower the cost base by a
further c.£3 million annually.
The
reduction in inventory is ahead of schedule, as explained
above.
Standardisation
of supplier payment terms is underway. We have identified c.50
suppliers, with whom we spend c. $30m
annually, whose terms need standardisation. Terms have been
extended with suppliers representing 15% of this spend. We expect
progress to accelerate in the first half of 2024.
Capex
spend for 2024 has been reduced to maintenance levels
beyond the residual spend on major projects as explained
above.
Amendments
to the Group’s borrowing facility
In
October 2023, we received unanimous
support from our banking syndicate for the following amendments to
the terms of our Revolving Credit Facility:
-
Leverage ratio: Net debt
to Adjusted EBITDA covenant limit increased to 3.5x until
31 December 2024, returning to 3.0x
thereafter
-
Interest cover: Adjusted
EBITDA to Adjusted Net Finance Expense covenant floor reduced to
3.0x until 30 September 2025,
returning to 4.0x thereafter.
Share
placing
During the
year the Group generated net proceeds of £44.0 million from issuing
additional shares equal to 20% of the share capital of the Company.
The shares were issued at a premium to the then prevailing market
price and were over-subscribed.
Funding
position at year-end
Following
implementation of the funding plan, net debt at 31 December 2023 was £112.7 million (31 December 2022: £151.0 million). Our gross cash
balance was £13.5 million (31 December
2022: £23.4 million).
Key
financing ratios at 31 December 2023
were as follows:
-
Leverage ratio: Net Debt
to Adjusted EBITDA of 2.0x (2022: 2.7x)
-
Interest cover: Adjusted
EBITDA to Adjusted Net Finance Expense of 4.8x (2022:
16.8x),
-
£73.1 million of undrawn
headroom within the Group’s committed bank facility. The facility
matures in June 2026 with a one-year
extension option (subject to lender consent).
Therefore, at 31 December 2023 the Group was comfortably in
compliance with its banking covenants and had ample funding
liquidity. At this date, it would have required:
-
an increase in Net Debt of
£81 million (or 72%) or a reduction in Adjusted EBITDA of £23
million (or 42%) to breach the leverage ratio
-
a reduction in EBITDA of
£21 million (38%) or an increase in Net Finance Costs of £7 million
(61%) to breach the interest cover covenant.
The
Director’s assessment of going concern has involved consideration
of the Group’s forecast covenant position in both a base case and a
severe but plausible downside case. The Group is forecast to remain
in compliance with its covenants in both the base and downside
cases, albeit with relatively modest additional headroom in the
case of the latter. The Group has ample borrowing liquidity in
either scenario. Further details can be found in Note 1 of the
consolidated financial statements. The Viability Statement is set
out in the 2023 Annual Report and Accounts.
Dividends
and capital allocation
In late
2023, the Board took the difficult decision to suspend dividend
payments as part of the funding plan described above. Therefore, no
final dividend is proposed for the fourth quarter of 2023.
Dividends previously declared for 2023 are 18.0 pence (2022: 94.0
pence).
Dividends
remain an important part of the Group’s long-term capital
allocation strategy. However, the Board believes it is in the
long-term interests of shareholders for debt reduction to be
prioritised over shareholder distributions until net debt returns
sustainably to our target range of 1-2x Adjusted EBITDA.
Our
long-term aim is to operate in a range of 0-1x Adjusted
EBITDA.
Matt Webb
Chief
Financial Officer
XP
Power Limited
Consolidated
Income Statement
for the
year ended 31 December
2023
£
Millions
|
Note
|
Adjusted
|
Adjustments
|
2023
|
Adjusted
|
Adjustments
|
2022
|
Revenue
|
2
|
316.4
|
-
|
316.4
|
290.4
|
-
|
290.4
|
Cost of
sales
|
|
(185.1)
|
*
|
(185.1)
|
(169.8)
|
-
|
(169.8)
|
Gross
profit
|
|
131.3
|
*
|
131.3
|
120.6
|
-
|
120.6
|
Other
Income
|
|
-
|
-
|
-
|
-
|
-
|
*
|
Expenses
|
|
|
|
|
|
|
|
Distribution
and marketing
|
|
(63.5)
|
(6.1)
|
(69.6)
|
(54.1)
|
(4.1)
|
(58.2)
|
Administrative
|
|
(3.3)
|
(7.4)
|
(10.7)
|
(3.3)
|
(55.3)
|
(58.6)
|
Research
and development
|
|
(26.4)
|
(0.1)
|
(26.5)
|
(20.3)
|
(7.6)
|
(27.9)
|
Operating
profit/(loss)
|
|
38.1
|
(13.6)
|
24.5
|
42.9
|
(67.0)
|
(24.1)
|
Net
finance expense
|
|
(11.5)
|
(1.8)
|
(13.3)
|
(4.9)
|
(1.2)
|
(6.1)
|
Profit/(loss)
before tax
|
|
26.6
|
(15.4)
|
11.2
|
38.0
|
(68.2)
|
(30.2)
|
Taxation
|
3
|
(9.8)
|
(10.4)
|
(20.2)
|
(6.1)
|
16.7
|
10.6
|
Profit/(loss)
for the year
|
|
16.8
|
(25.8)
|
(9.0)
|
31.9
|
(51.5)
|
(19.6)
|
Attributable
to:
|
|
|
|
|
|
|
|
Equity
shareholders
|
|
|
|
(9.2)
|
|
|
(20.0)
|
Non-controlling
interests
|
|
|
|
0.2
|
|
|
0.4
|
Loss
for the year
|
|
|
|
(9.0)
|
|
|
(19.6)
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
earnings/(loss) per share
|
5
|
81.9
|
(127.3)
|
(45.4)
|
160.6
|
(262.6)
|
(102.0)
|
Diluted
earnings/(loss) per share
|
5
|
81.8
|
(127.1)
|
(45.3)
|
160.1
|
(261.7)
|
(101.6)
|
Consolidated
Statement of Comprehensive Income
for the
year ended 31 December
2023
|
|
|
|
|
|
2023
|
|
|
2022
|
|
|
|
|
|
Loss
for the year
|
(9.0)
|
|
|
(19.6)
|
|
|
|
|
|
Items
that may be reclassified subsequently to profit or
loss:
|
|
|
|
|
Exchange
differences on translation of foreign operations
|
(5.3)
|
|
|
7.2
|
|
(5.3)
|
|
|
7.2
|
Items
that will not be reclassified subsequently to profit or
loss:
|
|
|
|
|
Currency
translation differences arising from consolidation
|
*
|
|
|
*
|
Other
comprehensive (loss)/profit for the year, net of
tax
|
(5.3)
|
|
|
7.2
|
Total
comprehensive loss for the year
|
(14.3)
|
|
|
(12.4)
|
*Balance
is less than £100,000.
The
accompanying notes form an integral part of these financial
statements.
XP
Power Limited
Consolidated
Balance Sheet
As at
31 December 2023
£
Millions
|
Note
|
2023
|
2022
|
|
|
|
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash and
cash equivalents
|
|
12.0
|
22.3
|
Inventories
|
|
91.6
|
114.4
|
Trade
receivables
|
|
43.1
|
42.4
|
Bond
receivable
|
|
36.7
|
37.0
|
Other
current assets
|
|
8.1
|
8.0
|
Derivative
financial instruments
|
|
-
|
*
|
Current
income tax recoverable
|
|
0.5
|
2.5
|
Total
current assets
|
|
192.0
|
226.6
|
|
|
|
|
Non-current
assets
|
|
|
|
Cash and
bank balances
|
|
1.4
|
1.1
|
Goodwill
|
|
75.6
|
77.5
|
Intangible
assets
|
|
63.1
|
69.9
|
Property,
plant and equipment
|
|
59.5
|
36.6
|
Right-of-use
assets
|
|
54.0
|
54.9
|
Deferred
income tax assets
|
|
0.7
|
15.1
|
ESOP loan
to employees
|
|
*
|
*
|
Other
investment
|
|
*
|
*
|
Total
non-current assets
|
|
254.3
|
255.1
|
Total
assets
|
|
446.3
|
481.7
|
|
|
|
|
LIABILITIES
|
|
|
|
Current
liabilities
|
|
|
|
Current
income tax liabilities
|
|
5.0
|
4.8
|
Trade and
other payables
|
|
48.3
|
52.6
|
Derivative
financial instruments
|
|
-
|
0.1
|
Lease
liabilities
|
|
1.4
|
2.4
|
Provisions
|
|
44.9
|
46.1
|
Borrowings
|
6
|
0.4
|
0.2
|
Total
current liabilities
|
|
100.0
|
106.2
|
|
|
|
|
Non-current
liabilities
|
|
|
|
Accrued
consideration
|
|
1.7
|
1.5
|
Borrowings
|
6
|
125.7
|
174.2
|
Deferred
income tax liabilities
|
|
9.3
|
10.5
|
Provisions
|
|
1.0
|
0.9
|
Lease
liabilities
|
|
53.3
|
48.9
|
Total
non-current liabilities
|
|
191.0
|
236.0
|
Total
liabilities
|
|
291.0
|
342.2
|
NET
ASSETS
|
|
155.3
|
139.5
|
|
|
|
|
EQUITY
|
|
|
|
Equity
attributable to equity holders of the Company
|
|
|
|
Share
capital
|
|
71.2
|
27.2
|
Merger
reserve
|
|
0.2
|
0.2
|
Share
option reserve
|
|
2.1
|
2.5
|
Treasury
shares reserve
|
|
*
|
*
|
Translation
reserve
|
|
(0.9)
|
4.2
|
Other
reserve
|
|
7.6
|
6.1
|
Retained
earnings
|
|
74.4
|
98.4
|
|
|
154.6
|
138.6
|
Non-controlling
interests
|
|
0.7
|
0.9
|
TOTAL
EQUITY
|
|
155.3
|
139.5
|
*Balance
is less than £100,000.
The
accompanying notes form an integral part of these financial
statements.
XP
Power Limited
Consolidated
Statement of Changes in Equity
for the
year ended 31 December
2023
|
|
|
|
Attributable
to equity holders of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
£
Millions
|
|
Share
capital
|
Share
option reserve
|
Treasury
shares reserve
|
Merger
reserve
|
Translation
reserve
|
|
|
Total
|
|
Total
equity
|
|
|
Other
|
Retained
|
Non-
|
|
reserve
|
earnings
|
controlling
interests
|
|
Balance
at
|
27.2
|
5.6
|
*
|
0.2
|
-2.9
|
4.4
|
137
|
171.5
|
0.9
|
172.4
|
|
|
|
|
01-Jan-22
|
|
|
|
Exercise
of share-based payment awards
|
-
|
-1.8
|
*
|
-
|
-
|
1.8
|
-
|
*
|
-
|
*
|
|
|
|
|
Share-based
payment expenses
|
-
|
0.1
|
-
|
-
|
-
|
-
|
-
|
0.1
|
-
|
0.1
|
|
|
|
|
Tax on
share-based payment expenses
|
-
|
-1.5
|
-
|
-
|
-
|
-
|
-
|
-1.5
|
-
|
-1.5
|
|
|
|
|
Dividends
paid
|
-
|
-
|
-
|
-
|
-
|
-
|
-18.6
|
-18.6
|
-0.4
|
-19
|
|
|
|
|
Acquisition
of non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
*
|
-
|
*
|
*
|
-
|
|
|
|
|
Future
acquisition of non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-0.1
|
-
|
-0.1
|
-
|
-0.1
|
|
|
|
|
Exchange
difference arising from translation of financial statements of
foreign operations
|
-
|
0.1
|
-
|
-
|
7.1
|
-
|
*
|
7.2
|
*
|
7.2
|
|
|
|
|
(Loss)/profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-20
|
-20
|
0.4
|
-19.6
|
|
|
|
|
Total
comprehensive income/(loss) for the year
|
-
|
0.1
|
-
|
-
|
7.1
|
-
|
-20
|
-12.8
|
0.4
|
-12.4
|
|
|
|
|
Balance
at
|
27.2
|
2.5
|
*
|
0.2
|
4.2
|
6.1
|
98.4
|
138.6
|
0.9
|
139.5
|
|
|
|
|
31-Dec-22
|
|
|
|
Exercise
of share-based payment awards
|
-
|
-1.2
|
*
|
-
|
-
|
1.6
|
*
|
0.4
|
-
|
0.4
|
|
|
|
|
Share-based
payment expenses
|
-
|
1.1
|
-
|
-
|
-
|
-
|
-
|
1.1
|
-
|
1.1
|
|
|
|
|
Tax on
share-based payment expenses
|
-
|
-0.2
|
-
|
-
|
-
|
-
|
-
|
-0.2
|
-
|
-0.2
|
|
|
|
|
Issuance
of shares
|
44
|
-
|
-
|
-
|
-
|
-
|
-
|
44
|
-
|
44
|
|
|
|
|
Dividends
paid
|
-
|
-
|
-
|
-
|
-
|
-
|
-14.8
|
-14.8
|
-0.3
|
-15.1
|
|
|
|
|
Future
acquisition of non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-0.1
|
-
|
-0.1
|
-
|
-0.1
|
|
|
|
|
Exchange
difference arising from translation of financial statements of
foreign operations
|
-
|
-0.1
|
-
|
-
|
-5.1
|
-
|
*
|
-5.2
|
-0.1
|
-5.3
|
|
|
|
|
(Loss)/profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-9.2
|
-9.2
|
0.2
|
-9
|
|
|
|
|
Total
comprehensive income for the year
|
-
|
-0.1
|
-
|
-
|
-5.1
|
-
|
-9.2
|
-14.4
|
0.1
|
-14.3
|
|
|
|
|
Balance
at
|
71.2
|
2.1
|
*
|
0.2
|
-0.9
|
7.6
|
74.4
|
154.6
|
0.7
|
155.3
|
|
|
|
|
31-Dec-23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Balance
is less than £100,000.
The
accompanying notes form an integral part of these financial
statements.
.
XP
Power Limited
Consolidated
Statement of Cash Flows
for the
financial year ended 31 December
2023
£
Millions
|
Note
|
2023
|
2022
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
Loss for
the year
|
|
(9.0)
|
(19.6)
|
Adjustments
for:
|
|
|
|
-
Taxation
|
3
|
20.2
|
(10.6)
|
-
Amortisation and depreciation
|
|
20.1
|
17.6
|
- Net
finance expense
|
|
13.3
|
6.1
|
-
Share-based payment expenses
|
|
1.1
|
0.1
|
- Fair
value gain on derivative financial instruments
|
|
(0.1)
|
(0.1)
|
- Loss on
disposal of property, plant and equipment
|
|
*
|
*
|
-
Impairment loss on intangible assets
|
|
2.5
|
7.8
|
- Gain on
disposal on rights-of-use of assets
|
|
(0.1)
|
-
|
-
Unrealised currency translation loss/(gain)
|
|
0.3
|
(12.6)
|
-
Provision for doubtful debts
|
|
0.1
|
*
|
-
Provision for legal dispute
|
|
-
|
46.9
|
Change in
working capital, net of effects from acquisitions:
|
|
|
|
-
Inventories
|
|
17.4
|
(24.8)
|
- Trade
and other receivables
|
|
(3.1)
|
(9.5)
|
- Trade
and other payables
|
|
(1.8)
|
0.2
|
-
Provision for liabilities and other charges
|
|
1.5
|
0.6
|
Cash
generated from operations
|
|
62.4
|
2.1
|
Income tax
paid, net of refund
|
|
(4.9)
|
(4.1)
|
Net
cash provided by/(used in) operating activities
|
|
57.5
|
(2.0)
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Acquisition
of subsidiaries, net of cash acquired
|
|
-
|
(33.0)
|
Purchases
and construction of property, plant and equipment
|
|
(30.6)
|
(7.5)
|
Additions
of development costs
|
|
(9.5)
|
(8.0)
|
Additions
of software and software under development
|
|
*
|
(3.9)
|
Purchase
of bond receivables
|
|
-
|
(36.9)
|
Proceeds
from disposal of property, plant and equipment
|
|
0.1
|
*
|
Proceeds
from repayment of ESOP loans
|
|
-
|
*
|
Interest
received
|
|
0.1
|
*
|
Payment of
accrued consideration
|
|
-
|
*
|
Net
cash used in investing activities
|
|
(39.9)
|
(89.3)
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Proceeds
from issuance of new ordinary shares
|
|
44.0
|
-
|
Proceeds
from borrowings
|
|
14.5
|
170.3
|
Repayment
of borrowings
|
|
(55.7)
|
(35.6)
|
Principal
payment of lease liabilities
|
|
(2.7)
|
(5.8)
|
Proceeds
from exercise of share-based payment awards
|
|
0.4
|
*
|
Interest
paid
|
|
(12.0)
|
(5.5)
|
Dividend
paid to equity holders of the Company
|
|
(14.8)
|
(18.6)
|
Dividend
paid to non-controlling interests
|
|
(0.3)
|
(0.4)
|
Bank
deposit pledged
|
|
(0.4)
|
(1.1)
|
Net
cash (used in)/provided by financing activities
|
|
(27.0)
|
103.3
|
|
|
|
|
Net
(decrease)/increase in cash and cash
equivalents
|
|
(9.4)
|
12.0
|
Cash and
cash equivalents at beginning of financial year
|
|
22.1
|
8.8
|
Effects of
currency translation on cash and cash equivalents
|
|
(0.7)
|
1.3
|
Cash
and cash equivalents at end of year
|
|
12.0
|
22.1
|
|
|
|
|
Balance is
less than £100,000.
The
accompanying notes form an integral part of these financial
statements
Notes
to the Consolidated Financial Statements
For the
year ended 31 December
2023
1. Basis
of preparation
This
financial information is presented in Pounds Sterling and has been
prepared in accordance with the provisions of the Singapore
Financial Reporting Standards (International) (“SFRS(I)”) and
International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”).
Going
concern
The Group
has available to it a US $ denominated Revolving Credit Facility
(RCF) of $255 million (£200
million).
The
facility matures in June 2026 and
therefore is committed throughout the minimum period for which
going concern is assessed, which is 12 months from the date of
signing these financial statements.
At
31 December 2023, the Group had drawn
down $162 million (£127 million)
against this, leaving undrawn facility headroom of more than £73
million.
In late
2023, financial covenants within the RCF agreement were amended as
follows as part of the Funding Plan described in the Chief
Financial Officer's Review:
-
Leverage ratio: Net Debt
to Adjusted EBITDA of not more than 3.5x until 31 December 2024, returning to not more than 3.0x
thereafter
-
Interest cover: Adjusted
EBITDA to Adjusted Net Finance Expense to not less than 3.0x until
30 September 2025, returning to not
less than 4.0x thereafter
Both
covenants are tested quarterly.
As part of
its going concern review, the Group developed base and severe but
plausible downside scenarios, assessing forecast liquidity and
covenant compliance in each case.
The key
assumption in both scenarios is revenue, particularly revenue
beyond the initial six-month period for which the business already
has visibility via existing sales orders.
Revenue in
this period, H2 2024 in this case, will be determined by, amongst
other things, the assumed timing of the semiconductor equipment
market upcycle and when any overstocking in the sales channel will
be cleared.
Other key
assumptions relate to the impact of available mitigating actions
and future interest rates.
Given that
the Group's borrowings are US $ denominated, net debt and therefore
the leverage ratio can be impacted by future movements in the US $
exchange rate.
In both
Cases below, the US $ exchange rate is assumed to be $1.26.
Base
Case
The
Group's Base Case scenario is that the slowdown in revenue that
commenced in mid-2023 will continue until mid-2024 before
recovering thereafter as excess channel inventory is cleared and
demand returns to the Semiconductor Manufacturing Equipment
market.
This
results in a 14% decline in revenue between 2023 and 2024 in
total.
The impact
of this is mitigated by management actions to reduce costs, as set
out in the Chief Financial Officer's Review.
The Base
Case assumes SOFR reduces gradually to 4.25% by 31 December 2024, in line with current market
expectations, lowering interest costs.
The Group
has capped the variable interest rate applicable to the majority of
its borrowings at a rate slightly above the current
SOFR.
In the
Base Case, the Group remains in full compliance with its financial
covenants and with ample liquidity throughout the going concern
assessment period.
The lowest
point of headroom in the Leverage Ratio covenant is at 30 September 2024.
EBITDA
would need to fall c.32% short of expectations in the period 1
January to 30 September 2024 for a
breach to occur.
Note that
the current order book covers nearly all of the first half’s
revenue.
The lowest
point of headroom in the Interest Cover covenant is at 30 September 2024.
EBITDA
would need to fall c.24% short of expectations in the period 1
January to 30 September 2024 for a
breach to occur.
Downside
Case
In the
severe but plausible downside scenario, the slowdown in revenue
that commenced in mid-2023 continues throughout 2024 with no
recovery. This results in a 18% decline in revenue between 2023 and
2024 in total, with the additional 4% decline versus the Base Case
arising in H2 2024.
This case
assumes a £5.0m reduction in annualised overheads, implemented from
the start of H2 2024, which reduces overheads for 2024 by 3.0%, in
addition to the reductions assumed in the Base Case.
The
interest rate assumption is the same as the Base Case.
In the
Downside Case, the Group remains compliant with its financial
covenants, albeit with lower headroom, and with ample liquidity
throughout the going concern assessment period.
The lowest
point of headroom in the Leverage Ratio covenant is 31 December 2024.
EBITDA
would need to fall c.18% short of expectations in 2024 for a breach
to occur.
The lowest
point of headroom in the Interest Cover covenant is 31 December 2024. EBITDA would need to fall c.4%
short of expectations in 2024 for a breach to occur.
The
Group's funding position has improved considerably due to the
Funding Plan implemented in late 2023.
New funds
have been raised from a share Placing, covenant terms were amended
with the support of all the Group's lenders, and actions were taken
to preserve cash and reduce costs.
Actions
taken to reduce cost illustrate the Group's ability to respond to
changed circumstances robustly and the benefit of these actions is
now coming through.
The
Directors are confident that the Base Case and Downside Case,
including the benefit of the Funding Plan, provides an appropriate
basis for the going concern assumption to be applied in preparing
the financial statements, whilst recognising lower headroom in the
Downside Case.
2. Segmental
reporting
The Group
is organised on a geographic basis. The Group's products are a
single class of business; however, the Group is also providing
information in respect of sales by end market to assist the readers
of this report.
The
revenue by class of customer and location of the design win is as
follows:
£
Millions
|
Europe
|
North
America
|
Asia
|
2023
Total
|
Europe
|
North
America
|
Asia
|
2022
Total
|
|
|
|
|
|
|
|
|
|
Semiconductor
Manufacturing Equipment
|
3.4
|
86.0
|
12.8
|
102.2
|
2.7
|
93.8
|
16.9
|
113.4
|
Industrial
Technology
|
67.6
|
54.0
|
14.7
|
136.3
|
61.3
|
44.5
|
13.8
|
119.6
|
Healthcare
|
26.8
|
44.5
|
6.6
|
77.9
|
22.5
|
28.9
|
6.0
|
57.4
|
Total
|
97.8
|
184.5
|
34.1
|
316.4
|
86.5
|
167.2
|
36.7
|
290.4
|
Revenue of
£56.6 million (2022: £48.3 million) is derived from a single
external customer. This is attributable to the semiconductor
manufacturing equipment sector across all geographical
regions.
Reconciliation
of segment results to loss for the year:
|
|
|
£
Millions
|
2023
|
2022
|
|
|
|
Europe
|
24.2
|
21.5
|
North
America
|
55.1
|
48.5
|
Asia
|
11.9
|
10.5
|
Segment
results
|
91.2
|
80.5
|
Research
and development
|
(21.9)
|
(19.8)
|
Manufacturing
|
(11.5)
|
(3.7)
|
Corporate
cost from operating segment
|
(19.7)
|
(14.1)
|
Adjusted
operating profit
|
38.1
|
42.9
|
Net
finance expense
|
(13.3)
|
(6.1)
|
Adjustments
– as set out below
|
(13.6)
|
(67.0)
|
Profit/(loss)
before tax
|
11.2
|
(30.2)
|
Taxation
|
(20.2)
|
10.6
|
Loss
for the year
|
(9.0)
|
(19.6)
|
Reconciliation
of adjusted measures
Adjusted
measures
The Group
presents adjusted operating profit and adjusted profit before tax
by adjusting for costs and profits which management believes to be
significant by virtue of their size, nature, or incidence or which
have a distortive effect on current year earnings. Such items may
include, but are not limited to, costs associated with business
combinations, gains and losses on the disposal of businesses, fair
value movements, restructuring charges, acquisition related costs
and amortisation of intangible assets arising from business
combinations.
In
addition, the Group presents adjusted profit for the year by
adjusting for certain tax charges and credits which management
believe to be significant by virtue of their size, nature, or
incidence or which have a distortive effect.
The Group
uses these adjusted measures to evaluate performance and as a
method to provide shareholders with clear and consistent reporting.
See below for a reconciliation of operating profit to adjusted
operating profit, profit before tax to adjusted profit before tax
and profit for the year to adjusted profit for the
year.
Further
details relating to these adjustments are provided in the Chief
Financial Officer’s Review.
(i) A
reconciliation of operating profit to adjusted operating profit is
as follows:
£
Millions
|
2023
|
2022
|
|
|
|
Operating
profit/(loss)
|
24.5
|
(24.1)
|
Adjusted
for:
|
|
|
Restructuring
costs
|
5.3
|
0.1
|
Global
supply chain transformation
|
2.7
|
-
|
Costs
relating to legal dispute
|
2.1
|
52.2
|
Impairment
of intangible assets
|
*
|
7.5
|
Amortisation
of intangible assets acquired from business combinations
|
3.2
|
4.1
|
Costs
related to Enterprise Resource Planning system
implementation
|
0.3
|
3.8
|
Acquisition
costs
|
0.1
|
2.4
|
Foreign
exchange gain on loan drawn down to finance acquisition
|
-
|
(3.2)
|
Revolving
credit facility fees
|
*
|
0.2
|
Fair value
adjustments on derivative financial instruments
|
(0.1)
|
(0.1)
|
|
13.6
|
67.0
|
Adjusted
operating profit
|
38.1
|
42.9
|
|
|
|
(ii) A
reconciliation of profit before tax to adjusted profit before tax
is as follows:
£
Millions
|
2023
|
2022
|
|
|
|
Profit/(loss)
before tax
|
11.2
|
(30.2)
|
Adjusted
for:
|
|
|
Restructuring
costs
|
7.7
|
0.3
|
Global
supply chain transformation
|
2.7
|
-
|
Costs
relating to legal dispute
|
2.1
|
52.2
|
Impairment
loss on intangible assets
|
*
|
7.5
|
Amortisation
of intangible assets acquired from business combination
|
3.2
|
4.1
|
Costs
related to Enterprise Resource Planning system
implementation
|
0.3
|
3.8
|
Acquisition
costs
|
0.1
|
2.4
|
Foreign
exchange gain on loan drawn down to finance acquisition
|
-
|
(3.2)
|
Revolving
credit facility fees
|
*
|
0.2
|
(Gain)/loss
on modification of revolving credit facility
|
(0.6)
|
1.0
|
Fair value
gain on derivative financial instruments
|
(0.1)
|
(0.1)
|
|
15.4
|
68.2
|
Adjusted
profit before tax
|
26.6
|
38.0
|
|
|
|
|
(iii) A
reconciliation of profit for the year to adjusted profit for the
year is as follows:
£
Millions
|
2023
|
2022
|
|
|
|
|
Loss for
the year
|
(9.0)
|
(19.6)
|
|
Adjusted
for:
|
|
|
|
Restructuring
costs
|
7.7
|
0.3
|
|
Global
supply chain transformation
|
2.7
|
-
|
|
Costs
relating to legal dispute
|
2.1
|
52.2
|
|
Impairment
loss on intangible assets
|
*
|
7.5
|
|
Amortisation
of intangible assets acquired from business combinations
|
3.2
|
4.1
|
|
Costs
related to Enterprise Resource Planning system
implementation
|
0.3
|
3.8
|
|
Acquisition
costs
|
0.1
|
2.4
|
|
Foreign
exchange gain on loan drawn down to finance acquisition
|
-
|
(3.2)
|
|
Revolving
credit facilities fees
|
*
|
0.2
|
|
(Gain)/loss
on modification of revolving credit facility
|
(0.6)
|
1.0
|
|
Fair value
gain on derivative financial instruments
|
(0.1)
|
(0.1)
|
|
Non-recurring
tax charge/(benefits)1
|
10.4
|
(16.7)
|
|
|
25.8
|
51.5
|
|
Adjusted
profit for the year
|
16.8
|
31.9
|
|
|
|
|
|
1 Adjusted
for tax on specific items relating to completed acquisitions of
£16,526 (2022: £0.6 million), gain on foreign exchange impact on
Euro-denominated loan drawn down to finance the acquisition of £nil
million (2022: £0.5 million), costs related to Enterprise Resource
Planning system implementation of £49,878 (2022: £0.8 million),
costs relating to legal dispute of £0.5 million (2022: £13.6
million), impairment of intangible assets of £5,272 (2022: £2.0
million), gain on modification of revolving credit facility of £0.1
million (2022: £ 0.2 million), restructuring cost of £1.9 million
(2022: £30,117), global supply chain transformation £0.7 million
(2022: £nil), fair value impact on derivative financial instruments
of £15,775 (2022: £22,462) and tax loss relating to legal claim
£13.6 million (2022: £nil).
3. Income
taxes
£
Millions
|
2023
|
2022
|
|
|
|
Singapore
corporation tax:
|
|
|
- current
year
|
3.6
|
2.8
|
- over
provision in prior financial year
|
(0.3)
|
(0.2)
|
|
|
|
Overseas
corporation tax:
|
|
|
- current
year
|
3.3
|
4.1
|
- under/(over)
provision in prior financial year
|
*
|
*
|
Withholding
tax
|
0.6
|
0.6
|
Current
income tax
|
7.2
|
7.3
|
Deferred
income tax:
|
|
|
- current
year
|
13.7
|
(17.1)
|
- over
provision in prior financial years
|
(0.7)
|
(0.8)
|
Tax
expense/(income)
|
20.2
|
(10.6)
|
Taxation
for other jurisdictions is calculated at the rates prevailing in
the respective jurisdictions at the balance sheet date.
The
differences between the total income tax expense shown above and
the amount calculated by applying the standard rate of Singapore income tax rate to the profit before
income tax are as follows:
£
Millions
|
2023
|
2022
|
|
|
|
Profit/(loss)
before income tax
|
11.2
|
(30.2)
|
|
|
|
Tax on
profit/(loss) at standard Singapore tax rate of 17% (2022:
17%)
|
1.9
|
(5.1)
|
Tax
incentives
|
(0.9)
|
(0.5)
|
Higher
rates of overseas corporation tax
|
(0.9)
|
(4.6)
|
Deduction
for employee share options
|
*
|
0.2
|
Non-deductible
expenditure
|
1.1
|
1.0
|
Non-taxable
income
|
(0.2)
|
(1.0)
|
Deferred
tax effect of change in tax rate
|
0.4
|
(0.2)
|
Deferred
tax asset on tax losses and wear and tear allowances not provided
for
|
5.8
|
-
|
Over
provision of tax in prior financial years
|
(1.0)
|
(1.0)
|
Deferred
tax arising from adjustments to the value of deferred tax
assets
|
13.4
|
-
|
Withholding
tax
|
0.6
|
0.6
|
Tax
expense/(income)
|
20.2
|
(10.6)
|
4. Dividends
Amounts
recognised as distributions to equity holders in the
period:
|
2023
|
2022
|
|
Pence
per
share
|
£
Millions
|
Pence
per
share
|
£
Millions
|
|
|
|
|
|
Prior year
third quarter dividend paid
|
21.0*
|
4.1
|
21.0
|
4.1
|
Prior year
final dividend paid
|
36.0*
|
7.1
|
36.0
|
7.1
|
First
quarter dividend paid
|
18.0^
|
3.6
|
18.0*
|
3.6
|
Second
quarter dividend paid
|
-
|
-
|
19.0*
|
3.8
|
Total
|
75.0
|
14.8
|
94.0
|
18.6
|
*
Dividends in respect of 2022 (94.0p).
^
Dividends in respect of 2023 (18.0p).
No further
dividends are proposed in respect of 2023 financial
year.
5. Earnings
per share
The
calculations of the basic and diluted earnings per share
attributable to the ordinary equity holders of
the
Company are based on the following data:
£
Millions
|
2023
|
2022
|
|
|
|
Loss for
the purposes of basic and diluted (loss/)earnings per
share
Loss
attributable to equity holders of the Company
|
(9.2)
|
(20.0)
|
Loss
for earnings per share
|
(9.2)
|
(20.0)
|
|
|
|
Number
of shares
|
|
|
Weighted
average number of shares for the purposes of basic earnings per
share (thousands)
|
20,281
|
19,616
|
|
|
|
Effect of
potentially dilutive share options (thousands)
|
23
|
63
|
|
|
|
Weighted
average number of shares for the purposes of dilutive earnings per
share (thousands)
|
20,304
|
19,679
|
|
|
|
(Loss)/earnings
per share:
|
|
|
Basic
|
(45.4)p
|
(102.0)p
|
Basic
adjusted*
|
81.9p
|
160.6p
|
Diluted
|
(45.3)p
|
(101.6)p
|
Diluted
adjusted*
|
81.8p
|
160.1p
|
*Reconciliation
to compute the adjusted earnings from operations is as per
below:
£
Millions
|
|
|
Earnings
for the purposes of basic and diluted earnings per share
|
|
|
Loss
attributable to equity holders of the Company
|
(9.2)
|
(20.0)
|
Restructuring
costs
|
7.7
|
0.3
|
Global
supply chain transformation
|
2.7
|
-
|
Costs
relating to legal dispute
|
2.1
|
52.2
|
Impairment
loss on intangible assets
|
*
|
7.5
|
Amortisation
of intangible assets acquired from business combination
|
3.2
|
4.1
|
Costs
related to Enterprise Resource Planning system
implementation
|
0.3
|
3.8
|
Acquisition
costs
|
0.1
|
2.4
|
Foreign
exchange gain on loan drawn down to finance acquisition
|
-
|
(3.2)
|
Revolving
credit facilities fees
|
*
|
0.2
|
(Gain)/loss
on modification of revolving credit facility
|
(0.6)
|
1.0
|
Fair value
gain on derivative financial instruments
|
(0.1)
|
(0.1)
|
Non-recurring
tax charge/(benefits)
|
10.4
|
(16.7)
|
Adjusted
earnings for the purposes of basic adjusted and diluted adjusted
earnings per share
|
16.6
|
31.5
|
6. Borrowings
The
Group’s debt is sourced from a US$
255m Revolving Credit Facility (“RCF”).
The RCF
facility is committed until June
2026. The facility has no fixed repayment terms until
maturity. The revolving loan is priced based on the Secured
Overnight Financing Rate (SOFR) administered by the Federal Reserve
Bank of New York plus a margin.
The margin applicable to drawn amounts range from 1.5-3.25%,
depending on the Net Debt:Adjusted EBITDA ratio for the previous
quarter.
The
non-utilisation fee payable for the undrawn element of the facility
is priced at 40% of the margin applicable to drawn
amounts.
The covenants attaching to the RCF
were renegotiated in November 2023.
The Net Debt/Adjusted EBITDA covenant was increased to 3.5x until
31 December 2024, returning to 3.0x
thereafter. The Adjusted EBITDA/Net Finance Expense covenant was
reduced to 3.0x until 30 September
2025, returning to 4.0x thereafter.
The
borrowings are repayable as follows:
£
Millions
|
2023
|
2022
|
|
|
|
On demand
or within one year
|
0.4
|
0.2
|
In the
second year
|
-
|
-
|
In the
third year
|
125.7
|
174.2
|
In the
fourth year
|
-
|
-
|
Total
|
126.1
|
174.4
|
All loan
covenants have been complied with as at 31
December 2023.
7.
Principal
risks and uncertainties
Board Responsibility
The Group
has well established risk management processes to identify and
assess risks. The Group’s principal risks are regularly reviewed by
the Board and are mapped onto a risk universe from which risk
mitigation or reduction can be tracked and managed. This helps
facilitate further discussions regarding risk appetite and draws
out the risks that require a greater level of attention.
Disruption to manufacturing
An event that results in the temporary or permanent loss of a
manufacturing facility could result in the Group being unable to
sell products to customers. This could include climate-related
events, such as severe weather, or government-imposed restrictions
or compulsory purchase orders. As the Group manufactures
approximately 80% of revenues, this would cause a short-term loss
of revenues and profits and disruption to our customers and
therefore would risk reputational damage.
Risk mitigation – We now have two facilities (China and Vietnam) where we can produce most of our
power converters.
We have disaster recovery plans in place for both
facilities.
We have undertaken a risk review with manufacturing management to
identify and assess risks which could cause a serious disruption to
manufacturing, and identified and implemented actions to reduce or
mitigate these risks where possible.
Our key facilities are owned or on long-term leases and we have
business interruption insurance in place.
Supply
chain risks
The Group is dependent on retaining its key suppliers and ensuring
that deliveries are on time and materials supplied are of an
appropriate quality.
As the
Group makes significant use of its Asian manufacturing footprint to
supply US and European markets, it is exposed to any risks relating
to threats to global shipping.
Whilst
alternative routes by sea or air freight can be used, these would
come with a time or cost impact.
Whilst global supply chains progressively normalised in 2023, some
key product components remain on relatively long lead times,
increasing the risk of shortages at the point of
manufacture.
Risk Mitigation – Components are dual sourced wherever
possible.
We conduct regular audits of our key suppliers.
Appropriate amounts of safety inventory of key components are held
and these levels are regularly reviewed with reference to demand
and lead times.
We monitor risks to our established transport routes, developing
contingency plans and ensuring our customers are kept aware of
issues and implications.
Market/customer-related risks
The semiconductor market represents a significant % of Group
revenue and is inherently cyclical.
A material proportion of the Group’s revenue is derived from its
largest customers.
Demand for our products may be impacted by gains or losses of
business with them, or changes in their inventory levels of our
products.
A significant semiconductor downturn could have a material adverse
impact on the Group’s revenue, profitability and financial
condition.
If the Group lost some of its key customers, this could have a
material impact on its financial condition and results of
operations. However, for the year ended 31
December 2023, no single customer accounted for more than
18% of revenue, and that revenue was spread over a large number of
individual programmes.
Risk mitigation - Staying close to our key customers and
understanding the end-market to provide visibility of likely market
movements.
The Group focuses on providing excellent service. Customer
complaints and non-conformances are reviewed monthly by members of
the Executive Leadership team.
Whilst visibility of customer inventory levels is naturally
limited, our sales teams discuss this with customers wherever
possible and reflect it in their demand projections.
Product-related risks
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.
Failure to develop new products or to not respond to new disruptive
products/technologies would impact the Group’s future revenue
stream.
Risk mitigation – We perform 100% functional testing on all
own-manufactured products and 100% hi-pot testing, which determines
the adequacy of electrical insulation.
This ensures the integrity of the isolation barrier between the
mains supply and the end user of the equipment. We also test all
the medical products that we manufacture to ensure the leakage
current is within the medical specifications.
Where we have contracts with customers, we always limit our
contractual liability regarding recall costs.
We prioritise investment and work closely with our customers to
ensure that our product offering remains market-leading.
IT/data
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 its ability to
operate.
Risk mitigation – The Group has a defined Business Impact
Assessment which identifies the key information assets; replication
of data on different systems or in the Cloud; an established backup
process in place as well as a robust anti-malware solution on our
networks.
Internally produced training materials are used to educate users
regarding good IT security practice and to promote the Group’s IT
policy.
All recommendations from an outsourced internal auditor assessment
have been implemented to further mitigate cyber risk and safeguard
the Group’s assets.
Funding/Treasury
The Group is reliant on external bank funding and needs to comply
with the related covenants. The Group could find itself in breach
of banking covenants and lose access to its funding.
Changes in interest rate % impacts the interest payments and
charges.
The majority of the Group’s sales and material purchases are in US
dollars, creating a natural transactional hedge. However, a
minority of sales and costs are denominated in other currencies,
exposing the Group to some transactional risks. The Group faces
translation currency risk from reporting in sterling. This could
lead to material adverse movements in reported earnings and cash
flows.
Risk mitigation - The Group has set a clear and conservative
leverage policy and performs detailed and regular cash forecasting
to ensure the leverage targets are met.
The Group reviews balance sheet and cash flow currency exposures
and, where appropriate, uses forward exchange contracts to hedge
these exposures. The Group does not hedge any translation of its
subsidiaries’ results to sterling for reporting
purposes.
Legal
& regulatory
The Group
operates in multiple jurisdictions with applicable trade and tax
regulations that vary. The Group ships product internationally,
both in terms of the internal supply chain and from third party
supplier and to end customers and also transfers manufacturing from
North America to Asia locations.
Compliance
with export laws is critical. Failing to comply with local
regulations could impact the profits and reputation of the Group
and its ability to conduct business.
Intellectual
property in terms of product design is an important feature of the
power converter industry.
The
effective tax rate of the Group is affected by where its profits
fall geographically. The Group’s effective tax rate could therefore
fluctuate over time and have an impact on earnings and potentially
its share price. It could also fluctuate if an efficient tax
structure is not maintained.
Risk
mitigation – The Group hires employees with relevant skills and
uses external advisers to keep up to date with changes in
regulations and to remain compliant.
Export
compliance software is in place to monitor customers and
sales.
An
outsourced internal audit function provides risk assurance in
targeted areas of the business and recommendations for improvement.
The scope of these reviews includes behaviour, culture, and
ethics.
The Group
establishes clear healthy and safety policy and
procedures.
M&A
The Group
may elect to make strategic acquisitions. A degree of uncertainty
exists in valuation, particularly in evaluating potential
synergies. Post-acquisition risks arise in the form of change of
control and integration challenges. Any of these could influence
the Group’s revenues, operations and financial
performance.
Risk
mitigation – Preparation of robust business plans and cash
projections with sensitivity analysis and the help of professional
advisers as appropriate.
Post-acquisition
reviews are performed to extract “lessons learned”.
People-related risks
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 key
employees could have a material adverse effect on the Group’s
business.
Risk mitigation – The Group undertakes performance evaluations and
reviews to help it stay close to its key personnel. Where
appropriate, the Group also makes use of financial retention tools
such as equity awards.
Climate-related risks
The Group is exposed to climate related risks that can have a
negative impact on the business.
Severe weather could affect our own locations or the supply
chain.
Not
meeting net zero targets may cause reputational damage and reduced
revenue.
Risk Mitigation – Ensure we maintain as flexible a manufacturing
footprint as possible to allow us to respond any single-site
disruption. We look to have dual-sourced supplies for material
purchases and conduct regular review of safety inventories to
ensure we have sufficient stocks.
We put
relevant policies and KPIs to ensure environmental targets are
deliverable.
8.
Responsibility
Statement
The statements below have been prepared in connection with the
Company's full Annual Report and Accounts for the year ended
31 December 2023. Certain parts are
not included in this announcement.
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable, and provides the
information necessary for shareholders to assess the Group's
position, performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the
Annual Report and Accounts confirm that, to the best of their
knowledge:
-
that the balance sheet of the Company and consolidated financial
statements of the Group, are drawn up in accordance with the
applicable set of accounting standards, to give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Group for the year ended 31
December 2023; and
-
the Annual Report and Accounts
includes a fair review of the development and performance of the
business and the financial position of the Group and the Company,
together with a description of the principal risks and
uncertainties they face.
9.
Other
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 19 Tai Seng Avenue, #07-01, Singapore 534054.
The
financial information set out in this announcement does not
constitute the Company’s statutory accounts for the years ended
31 December 2022 or 2023. The
financial information for the year ended 31
December 2022 is derived from the XP Power Limited statutory
accounts for the year ended 31 December
2022, which have been delivered to the Accounting and
Corporate Regulatory Authority in Singapore. The auditors reported on those
accounts; their report was unqualified. The statutory accounts for
the year ended 31 December 2023 will
be finalised based on the financial information presented by the
Directors in this earnings announcement and will be delivered to
the Accounting and Corporate Regulatory Authority in Singapore following the Company’s Annual
General Meeting.
Whilst the
financial information included in this earnings announcement has
been computed in accordance with SFRS(I) and IFRS as issued by the
IASB, this announcement does not itself contain sufficient
information to comply with SFRS(I) and IFRS as issued by the IASB.
The Company expects to publish full financial statements that
comply with SFRS(I) and IFRS as issued by the IASB.
This
announcement was approved by the Directors on 4 March 2024.