1 August 2019
XP Power Limited
(“XP Power” or
“the Group” or the “Company”)
Interim Results for the six months
ended 30 June 2019
XP Power, one of the world's leading developers and
manufacturers of critical power control solutions for the
electronics industry, today announces its interim results for the
six-month period ended 30 June
2019.
|
Six
months ended |
Six
months ended |
|
|
|
30
June 2019 |
30
June 2018 |
|
|
|
(Unaudited) |
(Unaudited) |
Change |
|
| Highlights |
|
|
|
|
|
|
|
|
|
| Order intake |
£100.6m |
£101.4m |
-1% |
|
Revenue
Turnover |
£98.9m |
£93.2m |
+6% |
|
| Gross margin |
44.6% |
46.7% |
-210bps |
|
| Interim dividend per
share |
35.0p |
33.0p |
+6% |
|
| Adjusted |
|
|
|
|
| Adjusted operating
profit1 |
£18.2m |
£20.7m |
-12% |
|
| Adjusted profit before
income tax1 |
£16.6m |
£20.3m |
-18% |
|
Adjusted
diluted earnings per share2
|
69.2p |
83.7p |
-17% |
|
| Reported |
|
|
|
|
| Cash generated from
operations |
£25.2m |
£15.8m |
+59% |
|
| Net debt |
£50.4m |
£52.0m3 |
N/A |
|
| Profit before tax |
£12.9m |
£18.5m |
-30% |
|
| Profit attributable to
equity holders |
£10.3m |
£14.6m |
-29% |
|
| Diluted earnings per
share |
52.8p |
74.9p |
-30% |
|
1Adjusted for completed acquisition costs of £0.4
million (1H 2018: £0.4 million), intangibles amortisation of £1.6
million (excluding amortisation for development costs) (1H 2018:
£1.0 million), changes in accounting policy of £Nil (1H 2018: £0.4
million), legal costs of £1.2 million (1H 2018: £Nil) and ERP
implementation costs £0.5 million (1H 2018: £Nil)
2Adjusted for completed acquisition costs of £0.4
million (1H 2018: £0.4 million), intangibles amortisation of £1.6
million (excluding amortisation for development costs) (1H 2018:
£1.0 million), changes in accounting policy of £Nil (1H 2018: £0.4
million), legal costs of £1.2 million (1H 2018: £Nil), ERP
implementation costs £0.5 million (1H 2018: £Nil) and non-recurring
tax benefits of £0.5 million (1H 2018: £0.1 million)
3Balance as at 31 December
2018
· Robust revenue growth in the
Healthcare sector up 8%, Industrial sector up 13%, and Technology
sector up 12%, offset by weakness in the Semiconductor
Manufacturing Equipment sector down 34%.
· Order intake decreased by 1% to
£100.6 million (7% decrease in constant currency).
· Revenue increased by 6% to £98.9
million (flat at constant currency).
· Own-design XP product revenues
increased 6% on a reported basis to a record £77.3 million (1H
2018: £72.6 million), and represent 78% of total revenues (1H 2018:
78%).
· Gross margin reduced to 44.6%
(1H 2018: 46.7%) due to the impact of Section 301 trade tariffs
imposed by the USA on goods
imported from China, adverse
product and geographic mix, and the impact of component price
inflation incurred in 2018 when supplies of critical electronic
components tightened.
· Expansion of the Vietnamese
manufacturing facility, which was completed in Q1 2019, enables the
Group to provide its USA customers
with products that are not subject to the 25% Section 301
tariffs. The Group has transferred manufacturing of over
1,500 different products from China to Vietnam in the past year.
· Restructuring of low power, high
voltage DC-DC manufacturing through transfer of operations from
Nevada to Vietnam, resulting in annual savings of circa
£4.0 million from June 2020.
· A portion of the savings from
the restructuring will be reinvested in expanding our new product
introduction team to facilitate the transfer of further production
volumes from the USA to
Vietnam, resulting in further
savings over the medium term.
· Cash generated from operations
up 59% to £25.2 million (1H 2018: £15.8 million) as a result
of improved working capital management.
· Dividend for the first half of
2019 increased by 6% to 35.0 pence
per share (1H 2018: 33.0 pence per
share), reflecting the confidence the Board has in the Group’s
longer term prospects.
James Peters, Chairman,
commented:
“Our results for the first half reflect tougher trading
conditions in the second quarter. While growth in our
Healthcare, Industrial and Technology markets remained robust, this
was offset by a cyclical slowdown in the Semiconductor Equipment
Manufacturing market and pressure on gross margins, resulting from
the increase in USA trade tariffs on Chinese manufactured goods,
historic component price inflation and product mix.
Notwithstanding these current headwinds, we continue to win new
design slots at our key customers and to take market share. We
benefit from a broad customer base as demonstrated by the
resilience of our Industrial, Healthcare and Technology sector
performance. We are well positioned to take further share and will
benefit from any recovery in the Semiconductor Equipment
Manufacturing sector. While we remain mindful of potential
short-term risks and macroeconomic challenges, we continue to
expect an improved revenue performance in the second half of the
year as a result of the increase in our order book since the year
end. With a proven strategy, strong design win momentum and
an expanded product portfolio, the Board remains positive regarding
the future of the Group.”
Enquiries:
XP
Power
Duncan Penny, Chief Executive
Officer
+44 (0)118 984 5515
Gavin Griggs, Chief Financial
Officer
+44 (0)118 984 5515
Citigate Dewe
Rogerson
Kevin Smith/Jos
Bieneman
+44 (0)20 7638 9571
Note to editors
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.
XP Power typically designs power control solutions into the end
products of major blue-chip OEMs, with a focus on the Industrial
(circa 48% of sales), Healthcare (circa 24% of sales),
Semiconductor Equipment Manufacturing (circa 17% of sales) and
Technology (circa 11% of sales) sectors. Once designed into a
programme, XP Power has a revenue annuity over the life cycle of
the customer’s product which is typically 5 to 7 years depending on
the industry sector.
XP Power has invested in research and development and its own
manufacturing facilities in China
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 serves a global blue-chip customer base from 29 locations
in Europe, North America and Asia.
For further information, please visit xppower.com.
1 August 2019
XP Power Limited
(“XP”, “XP Power”
or “the Group”)
Interim Results for the six months
ended 30 June 2019
INTERIM
STATEMENT
Overview
The Group made a good start to 2019 with encouraging order
intake in the first quarter but the second quarter of the year has
proved to be more challenging. While we have continued to see
robust growth in our Healthcare, Industrial and Technology
revenues, there has been a further slowdown in the Semiconductor
Equipment Manufacturing sector due to the weaker market for
memory. This has affected a number of our larger customers
who are working through inventory as they await a recovery in
market conditions, which is not expected before 2020.
Furthermore, the imposition of Section 301 tariffs by the
USA on products we supply from
China into the USA, which were increased from 10% to 25% in
May 2019, and the retaliatory tariffs
China has placed on USA manufactured products has caused downward
pressure on our gross margins in the first half. The strong
performance we have delivered in the Healthcare, Industrial and
Technology sectors has not been enough to compensate for the
detrimental effect of these two factors.
Our decision to establish manufacturing capability in
Vietnam in 2012 and the subsequent
capacity expansion which was completed in the first quarter of 2019
have proved to be extremely timely. Our Vietnam manufacturing
plant allows us to offer our USA
customers products which are not subject to the 25% Section 301
tariff imposed by the Trump administration on power converters
manufactured in China. The majority of our competition have a
predominantly Chinese manufacturing footprint. We have
transferred the production of over 1,500 different products from
China to Vietnam in the last 12 months. We are
also announcing plans to transfer the manufacture of all our low
power, high voltage DC-DC converters to Vietnam by mid-2020, which we expect will lead
to significant cost savings.
Notwithstanding these headwinds, we are continuing to win new
design slots with our key customers and take market share.
The acquisitions of Comdel in Radio Frequency (“RF”) power and
Glassman High Voltage in high power, high voltage have
significantly expanded our addressable market. They are
providing a springboard for future growth in our existing customer
base as our sales teams find interesting new applications for these
products.
Our Strategy and Value Proposition
We remain committed to our strategy and continue to invest for
the medium and longer term. We continued to execute well
against our strategy in the period, gaining further design wins
from our newer product introductions and our increased focus on
engineering solutions which provide more value to our customers.
The successful implementation of our strategy continues to
drive market share gains and the strength of our new programme wins
is encouraging.
The Group has applied a consistent strategy of moving up the
value chain and our growth derives in part from the targeting of
key customers. Once we are approved to supply these larger
customers, we have a strong track record of successfully gaining a
larger share of their available business. We also continue to
expand the breadth of our product portfolio, both organically and
by acquisition, in what remains a highly fragmented sector,
therefore enabling us to increase our addressable market.
Since the end of 2015, we have completed three acquisitions
which have allowed us to expand into the high voltage and RF power
market sectors increasing our addressable market by circa
US$2.0 billion (75%).
Our acquisition of the Glassman High Voltage business in
May 2018 opened up the circa
US$500 million high power, high
voltage market to the Group. The combination of the XP Power
sales force with the engineering and manufacturing capability at
Glassman is compelling, and we are finding good opportunities for
this product line. We now have an enviable product portfolio
of over 300 product families from low voltage to 500 kilo Volts at
power levels up to 200 kilo Watts. This breadth of range
combined with our excellent customer support and Engineering
Services capabilities makes us the ideal choice of power solutions
provider to our target customers.
Our value proposition to customers is to reduce their overall
costs of design, manufacture and operation and get their product to
market as quickly as possible. We achieve this by providing
excellent sales engineering support and producing new highly
reliable products that are easy to design into the customer’s
system, consume less power, take up less space and reduce
installation times.
Our vision is to be the first-choice power solutions provider,
delivering the ultimate experience for our customers and as a place
of work for our people.
XP Power supplies power control solutions to Original Equipment
Manufacturers (“OEMs”) who supply the Healthcare, Industrial,
Semiconductor Equipment Manufacturing and Technology markets with
high value, high reliability products. The increasing
importance of energy efficiency for environmental, reliability and
economic reasons; increasing demand for digital connectivity of
power conversion products; the necessity for ever smaller products;
the accelerating rate of technological change; and the increasing
proliferation of electronic equipment and semiconductor devices,
have established a strong foundation for growth in demand for XP
Power’s products.
Trading and Financial Review
On a statutory basis, revenue was £98.9 million (1H 2018:
£93.2 million), representing growth of 6%.
Operating profit was £14.5 million (1H 2018:
£18.9 million), a decrease of 23% against the prior year,
with operating margin at 14.7% (1H
2018: 20.3%). Net finance costs were
£1.6 million (1H 2018: £0.4 million), resulting
in profit before tax of £12.9 million (1H 2018:
£18.5 million). Income tax expense was £2.5 million (1H
2018: £3.8 million), equivalent to an effective tax rate
of 19.4% (1H 2018: 20.5%). Basic earnings per
share were 53.8 pence (1H 2018: 76.4 pence), a
decrease of 30%.
Adjusted Results
Throughout this Interim Results statement, adjusted and other
alternative performance measures are used to describe the Group’s
performance. These are not recognised under International
Financial Reporting Standards (“IFRS”) or other Generally Accepted
Accounting Principles (“GAAP”).
When reviewing XP Power’s performance, the Board and management
team focus in particular on adjusted results rather than statutory
results. There are a number of items included in our
statutory results which are considered by the Board to be one-off
in nature or not representative of the Group’s performance and are
thus excluded from adjusted results. The tables in note 5
show the full list of adjustments between statutory operating
profit and adjusted operating profit by business, as well as
between statutory profit before tax and adjusted profit before tax
at Group level for both 2019 and 2018.
Order Intake
Order intake of £100.6 million (1H 2018: £101.4 million) was
down 1% on a reported basis. Given that the majority of
orders are placed in US Dollars, the reported results reflect the
impact of the weaker Sterling:US Dollar exchange rate of 1.29 in
2019, compared to 1.39 in the prior year. When adjusted to
constant currency, 2019 orders were down 7% compared with the prior
year. In constant currency, compared to the same period a
year ago, Asia orders increased by
11%, Europe orders increased by
1%, while North America orders
decreased by 12% (19% organic). The majority of our
Semiconductor Equipment Manufacturing customers are in North America, and the downturn in this sector
is the key driver of the decline in orders in North America.
Order intake in the first half of 2019 exceeded revenues with a
resultant book-to-bill ratio of 1.02 (1H 2018: 1.09). We
enter the second half of the current year with an order book of
£86.1 million (December 2018: £81.5
million).
Revenue Performance
Reported revenues grew by 6% to £98.9 million in the six months
to 30 June 2019 compared to £93.2
million in the same period a year ago. When adjusting to
constant currency, 2019 revenues were flat compared to 2018.
Revenues in North America were
US$72.9 million (1H 2018:
US$79.0 million), down 8% compared to
the same period a year ago. Excluding revenues from Glassman
High Voltage which was acquired in May
2018 of US$7.6 million (1H
2018: US$1.4 million), organic
revenues declined by 16%, reflecting the weak performance of the
Semiconductor Equipment Manufacturing sector. Revenues in
Europe were £32.9 million (1H
2018: £29.7 million), up 11% on the same period a year ago
(approximately half the European revenues are denominated in US
Dollars). Our business in Europe is very diverse but heavily weighted
towards the Industrial sector which has held up well. While
difficult to quantify, there is anecdotal evidence of some
customers reporting inventory build up to buffer potential adverse
effects arising from a disorderly Brexit. Revenues in
Asia were US$12.3 million (1H 2018: US$9.0 million), up a healthy 36% compared with
the same period a year ago driven by a Technology sector programme
coming back to life and strong performance from RF programmes.
On a sector basis, revenues from Healthcare customers grew by 8%
to US$30.2 million (1H 2018:
US$28.0 million). Revenues from
Industrial customers increased by 13% to US$60.9 million (1H 2018: US$54.1 million). Revenues from Technology
customers grew 12% to US$13.9 million
(1H 2018: US$12.4 million). In
contrast to the robust growth in the Healthcare, Industrial and
Technology sectors, revenues from Semiconductor Equipment
Manufacturing customers declined significantly by 34% to
US$22.7 million (1H 2018:
US$34.6 million) as a result of
weakness in the market for memory. We are not expecting any
recovery in the Semiconductor Equipment Manufacturing market before
2020. The acquired Glassman High Voltage business contributed
US$5.3 million (1H 2018: US$1.0 million) to Semiconductor Equipment
Manufacturing revenues in 1H 2019, giving an organic decline in
revenue of 48% in this sector compared to organic growth of 68% in
2018. Notwithstanding the decline in the Semiconductor
Equipment Manufacturing sector, we regard this sector as having
highly attractive growth prospects which are being driven by the
growth of Big Data, Augmented Intelligence and the Internet of
Things.
XP Power’s expansion of its capabilities into higher voltage,
higher power and RF power has made us an attractive power solutions
provider to the many Healthcare and Semiconductor Equipment
Manufacturers who use these types of products and value our
engineering solutions capability.
In terms of overall revenue for the first half of 2019,
Industrial represented 48% (1H 2018: 42%), Technology represented
11% (1H 2018: 10%), Healthcare represented 24% (1H 2018: 22%) and
Semiconductor Equipment Manufacturing represented 17% (1H 2018:
26%).
Our customer base remains highly diversified with the largest
customer accounting for only 9% of revenue (1H 2018: 16%), spread
over 180 different programmes/part numbers.
Gross Margin
Gross margin in the first half of 2019 was 44.6% (1H 2018:
46.7%), a 210 bps decline on a reported basis and 150 bps in
constant currency. The 150 bps decline in gross margin in constant
currency resulted from a combination of the higher component costs
incurred in 2018 now being reflected within our cost of sales,
adverse geographic and product mix, and the impact of Section 301
tariffs which we have not been able to fully recover from
customers. Whilst we expect the Section 301 tariffs to be
resolved in the short to medium term, we are continuing to work
with customers on tariff recovery and mitigation, and expect our
gross margin to benefit from this in the second half of 2019 as a
result.
Adjusted Operating Expenses and
Margins
Adjusted operating expenses in the first half were £25.9 million
(1H 2018: £23.2 million reported and £23.9 million in constant
currency) after adjusting for £1.6 million of intangibles
amortisation (1H 2018: £1.0 million), £0.4 million of acquisition
related costs (1H 2018: £0.4 million), £0.5 million of Enterprise
Resource Planning (“ERP”) system implementation costs (1H 2018:
£Nil) and £1.2 million of legal costs (1H 2018: £Nil). The
legal costs relate to an ongoing legal dispute in North
America. The dispute is non-customer related and is currently
in mediation.
The principal increase in operating expenses was in Product
Development. We are engaging in ever more sophisticated and
complex programmes with many of our key customers. These
customers value XP Power’s engineering solutions and power
conversion expertise to solve their power-related challenges and
get their products to market more quickly. Systems are
becoming more complex and there is increasing demand for power
conversion solutions that communicate with both the customers’
applications and with the outside world as the concept of an
Internet of Things promulgates. This area of the market
allows us to add more value to our customers’ engineering teams and
is less crowded with low cost Asian competition. As such, we
continue to reinvest part of the cash returns generated from our
growth to fund further expansion of our engineering capabilities,
particularly our engineering solutions groups in Asia, Europe
and North America.
Gross product development spend was £8.9 million (1H 2018: £6.6
million), £4.4 million of which was capitalised (1H 2018: £2.8
million), and £1.8 million amortised (1H 2018: £1.4 million).
We will continue to invest in engineering resources to drive
future revenue growth.
We have also continued to invest in additional customer support
and engineering resources as we remain committed to the future
growth of the business.
The reduction in gross margin combined with the increase in
expenses resulted in a lower adjusted operating margin of 18.4% (1H
2018: 22.2%).
Finance Cost
Net finance cost increased to £1.6 million (1H 2018:
£0.4 million) due to increased average borrowings following
the acquisition of Glassman High Voltage in May 2018 and the requirement to build
additional inventory in the second half of 2018 as a
result of significant increases in component lead times. Our
raw material inventory in Asia has
started to reduce toward more normal levels although the longer
lead times remain for some of our components. The Group also
recognised an interest expense of £0.1 million (1H 2018: £Nil) in
relation to leases due to the adoption of IFRS 16 from 1 January 2019.
Interest cover (EBITDA as a multiple of net interest
expense as defined by our Revolving Credit
Facility) was 18.8 times (1H
2018: 74.6 times) which is well in excess of the
minimum required in our banking covenants.
Adjusted Profit before Tax
The Group generated adjusted profit before tax of
£16.6 million (1H 2018: £20.3 million), down 18% year-on-year
despite the growth in revenue due to a gross margin dilution of
210bps and an increase of 170bps investment in operating costs and
the increased finance charge.
Specific Items
Specific items are excluded from management’s assessment of
profit because they distort the Group’s underlying earnings either
due to their size or nature. In the first half of 2019, the
Group incurred £3.7 million (1H 2018: £1.8 million) of specific
items, which consisted amortisation of intangible assts due to
business combinations of £1.6 million (1H 2018: £1.0 million), £1.2
million of legal costs (1H 2018: £Nil), £0.5 million of ERP system
implementation costs (1H 2018: £Nil) and £0.4 million of
acquisition related costs (1H 2018: £0.4 million).
Taxation
The tax charge for the period was £2.5 million (1H 2018: £3.8
million), representing an effective tax rate of 19.4% (1H 2018:
20.5%). After adjusting for specific items, the effective tax
rate for the period was 18.1% (1H 2018: 18.7%).
We currently expect our future effective tax rate to be in the
range of 17% to 19% depending on the geographic distribution of our
future profits.
Operating Cash Flows and Net Debt
The Group generated net cash from operations of £25.2 million,
up 59% from the £15.8 million generated in the previous year.
The higher level of operating cash flows was largely due to
better working capital management, with net working capital inflows
of £4.6 million compared to outflows of £8.4 million in 2018, with
inventory levels reducing from the higher levels seen in 2018.
We expect a further unwinding of working capital in the
second half of 2019.
Net debt was £50.4 million at 30 June
2019, compared with £52.0 million at 31 December 2018. The Group continued its
progressive dividend policy which resulted in returning £10.2
million (1H 2018: £9.2 million) to shareholders in the form of
dividends.
Product Development
New products are fundamental to our revenue growth. The
broader our product offering, the higher the probability that we
will have a product which will work in the customer’s application,
with or without a modification by our engineering team. By
expanding into high voltage and RF power, we have increased our
addressable market from around US$3.0
billion to approximately US$4.7
billion.
The design-in cycles required by our customers to qualify the
power converter in their equipment and to gain the necessary safety
agency approvals are lengthy. Typically we see a period of
around 18 months, or even longer in healthcare, from first
identifying a customer opportunity to receiving the first
production order. Revenue will then start to build from this
point, often peaking a number of years later. The positive
aspect of this characteristic is that our business has a strong
annuity base where programmes typically last seven to eight years.
Another aspect of this model is that the many new products we
have introduced over the last three years have yet to make a
meaningful impact on our revenue, creating a significant benefit
for future years.
XP Power launched 9 new product families in the first half of
2019 (1H 2018: 12). We continue to lead our industry in the
introduction of high efficiency, “green” products, with all of the
new product families released in the first half of 2019 having high
efficiency and/or low stand-by power.
Following the acquisition of Glassman High Voltage in
May 2018, we released our first high
power, high voltage product family. The EY Series is a range
of high voltage, rack mount, laboratory type power supplies that
can also be used in Original Equipment Manufacturer
(“OEM”) applications. Delivering up to 1,200
Watts of power, there are models covering output voltages from 1
kilo Volts to 60 kilo Volts.
We have also demonstrated our continued move up the power level
in low voltage with the release of a new family of 5 kilo Watt
products. In addition, we brought our offering of medical
external power supplies up to date with new product families at 150
and 200 Watts, together with the introduction of low-cost next
generation 40 and 60 Watt open frame products.
With larger customers continuing to reduce the number of vendors
they deal with, XP Power’s broad product offering, excellent global
engineering support, in-house manufacturing capability and
industry-leading environmental credentials leave the Group
well-placed to secure further preferred supplier agreements.
The addition of RF power and high voltage, high power
products to our range via the acquisitions of Comdel and Glassman
further enhances this proposition. Combining this with our
Engineering Services offering makes us a compelling partner to our
larger customers who come to us to provide leading edge power
solutions to power their complex applications.
Manufacturing Progress
XP Power’s move into manufacturing in 2006 has been instrumental
in enabling the Group to win approved and preferred supplier status
with new Blue-Chip customers who value suppliers that have complete
control over their manufacturing and supply chain to ensure the
highest levels of quality and agility.
To supplement our original Chinese manufacturing facility in
Kunshan near Shanghai, our
Vietnamese manufacturing facility, located in Ho Chi Minh City, began production of its
first magnetic components in 2012. Since the fourth quarter
of 2014, our Vietnamese facility has been producing complete power
converters of the same standard as our Chinese facility.
We completed the construction of a second factory on our
existing site in Vietnam in the
first quarter of 2019, and this is expected to add US$130 million of manufacturing capacity per
year. This will increase our total manufacturing capacity in
Asia from US$170 million to US$300
million per year. The move into Vietnam and the recently completed capacity
expansion have proved particularly timely given the deterioration
in trade relations between China
and the USA and the imposition of
Section 301 tariffs at a rate of 10% from September 2018 and 25% since 10 May 2019. The majority of our
competitors have Chinese based manufacturing facilities which puts
them at a significant commercial disadvantage if they are selling
into the USA. The ability to
manufacture in Vietnam has become
a compelling value proposition to our USA customers. Realising this advantage
in full will take time as some customers will need to approve the
transfer of production from our Chinese facility to our Vietnamese
facility. Kunshan will continue to focus on the higher power,
higher complexity products and products destined for the Chinese
market.
Since the summer of 2018, we have been working to ensure all
products less than 1.5 kilo Watts can be manufactured in both
China and Vietnam to provide supply flexibility and
business continuity. This process is now complete.
Vietnam is now qualified to produce a total of 1,819
different products (1H 2018: 282), demonstrating the effect and
resources that have gone into the transfer of production. XP
Power manufactured 779,800 (1H 2018: 716,900) power converters in
total during the first half of 2019, and 619,600 (1H 2018: 504,800)
of these were produced in Vietnam. We expect to be able to
win more design slots with our key customers in the coming months
due to this important strategic capability. Our Vietnamese
facility would continue to enjoy a cost advantage over competitors
with a predominantly Chinese manufacturing footprint, even in the
event that the Trump administration decides to levy Section 301
tariffs on power converters produced in Vietnam.
Having the capability to produce the majority of our products in
both China and Vietnam also significantly helps with business
continuity planning.
Restructuring of Low Power, High
Voltage Manufacturing and Transfer to Vietnam
In order to take advantage of our expanded Vietnam capacity, competitive labour rates and
excellent quality, we will be transferring the manufacture of all
our low power, high voltage DC-DC modules to our Vietnamese
facility. Our manufacturing facility in Minden, Nevada will close by June 2020.
We expect that this will result in annualised cost savings of
approximately £4.0 million. Approximately £1-2 million of
these cost savings will be reinvested back into the business to
expand and strengthen our new product introduction team. The
enlarged team will facilitate further transfers of existing
engineering services production from our facility in Sunnyvale, California to Vietnam, as well as new standard products as
they are introduced, resulting in additional future savings.
We expect to incur approximately £1-2 million in costs associated
with the full closure of the site over the next 12 months.
Supply Chain
In 2018, we saw significant cost inflation and extension of lead
times for many of the electrical components that we incorporate
into our products, particularly Mosfet transistors and multilayer
surface mount capacitors. As a result of this, we increased
our safety inventories significantly and secured critical
components at prices above our standard costs in order to ensure we
could continue to support our customers production requirements.
Since the summer of 2018, we have seen certain component lead
times reduce but the supply of certain critical components such as
Mosfets remains constrained. We are continuing to manage our
component inventory, building in a sufficient margin of safety
stock on critical lines wherever possible. There has been
significant focus on reducing inventory where possible, and we have
seen factory-held component inventory reduce in the first half of
2019.
New Enterprise Resource Planning
(“ERP”) System
Efficient and robust systems are essential in order for us to
manage an international business and supply chain with a highly
diverse customer base. We already operate a global Customer
Relationship Management system across all our businesses, which
allows us to collaborate, share information and provide efficient
and effective customer service. In our 2017 Annual Report, we
announced a project to implement the latest version of SAP across
our entire global supply chain. The project will first focus
on our sales companies in Asia,
Europe and North America, which already run a version of
SAP, followed by our China and
Vietnam manufacturing facilities
and our recent acquisitions.
We expect this implementation to have significant benefits in
terms of factory planning and customer responsiveness and it will
give us significant operational advantages with our factory systems
running on the same platform as our sales companies. Further
gains will be realised when we migrate the acquired Comdel and
Glassman High Voltage businesses to the new platform.
We expect to go live with the sales companies in the second half
of 2019, and with the Chinese and Vietnamese factories in 2020.
The Group capitalised £1.8 million (1H 2018: £Nil) of
development costs and incurred £0.5 million (1H 2018: £Nil) of
other project related costs in the first half of 2019 in respect of
this project.
Dividend
The Company makes quarterly dividend payments. Our strong
cash flows and confidence in the Group’s prospects have enabled us
to increase total dividends for the first half by 6% to
35.0 pence per share (1H 2018:
33.0 pence per share) despite the
headwinds we are facing from the Semiconductor Equipment
Manufacturing sector and Section 301 tariffs.
The first quarter dividend payment of 17.0 pence per share was made on 11 July
2019. The second quarter dividend of 18.0 pence per share will be paid on 10 October 2019 to shareholders on the register
at 13 September 2019.
The compound average growth rate in dividends over the last 10
years has been 14%.
Brexit
As previously reported, the Group analysed the implications of a
no deal Brexit and concluded that it would have limited operational
implications. In the first quarter of 2019, we implemented
our contingency plan for a no deal Brexit which involved
transferring certain inventories held in support of 15 key accounts
from our UK warehouse to our German warehouse. While we will
not be immune to any macroeconomic consequences of a no deal
Brexit, we are confident that the actions we have taken will
prevent any internal operational issues.
We have seen evidence of some customers bringing orders forward
and increasing their inventories as part of their Brexit planning.
The magnitude of this activity on the phasing of our orders
and revenues is difficult to quantify but we do not believe it to
be substantial.
Environmental Impact and “Green”
Products
XP Power has placed improved environmental performance at the
heart of its operations both in terms of minimising the impact its
activities have on the environment and, as importantly, in its
product development strategy.
We have developed a class-leading portfolio of “green” products
with efficiencies up to 95% and many of these products also have
low stand-by power (a feature to reduce the power consumed while
the end equipment is not operational but in stand-by mode).
Revenues for these ultra-high efficiency “green” products
continue to grow and are up by 43% on a reported basis to £28.1
million (1H 2018: £19.7 million) representing 28% of total revenue
(1H 2018: 21%). The RF power products added to our portfolio
as a result of the acquisition of Comdel and the majority of the
high power, high voltage products added to our portfolio as a
result of the acquisition of Glassman High Voltage are not
classified as “green” products.
Outlook
We continue to see a robust performance from our Healthcare,
Industrial and Technology businesses, however, a combination of
continued softness in the Semiconductor Equipment Manufacturing
sector and the task of recovering Section 301 tariffs present us
with a continuing challenge as we enter the second half.
Our Vietnamese manufacturing capability puts us in a strong
position to mitigate the impact of Section 301 tariffs. The
transfer of production from China
to Vietnam, and the qualification
of product by our key customers once transferred, is key to
restoring our margins to historical levels. Once this is
achieved, our production footprint should give us a compelling cost
advantage over the majority of our competitors who produce
predominantly in China. Our
margins in 2020 will also start to benefit from the closure of our
Minden facility and the transfer
of the Minden-built products to
Vietnam.
Although we do not anticipate any meaningful upturn in the
Semiconductor Equipment Manufacturing sector before 2020, once the
recovery takes hold we expect the combination of our recent design
wins and the cyclical recovery to produce significant growth in
this sector.
We remain conscious of potential risks arising from the global
macroeconomic challenges, the Board expects further revenue growth
in the second half of the year notwithstanding the current softness
in the Semiconductor Equipment Manufacturing market.
We believe we are well along the path to achieving our vision of
becoming the first-choice power solutions provider to our existing
and target customer base.
Independent review report to XP Power
Limited
Report on review of interim financial
information
Introduction
We have reviewed the accompanying condensed consolidated
financial information of XP Power Limited (“the Company”) and its
subsidiaries (“the Group”) set out on pages 14 to 26, which
comprise the condensed consolidated balance sheet of the Group as
at 30 June 2019, the condensed
consolidated statements of comprehensive income, changes in equity
and cash flows for the 6-month period then ended and the related
notes. Management is responsible for the preparation and
presentation of this condensed consolidated interim financial
information in accordance with International Accounting Standard 34
Interim Financial Reporting as adopted by the European Union
and the Disclosure and Transparency Rules of the United Kingdom’s
Financial Conduct Authority. Our responsibility is to express a
conclusion on this interim financial information based on our
review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity.
A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly
financial report, which comprise the “Interim Results” set out on
pages 1 to 3, “Interim Statement” set out on pages 4 to 12 and
“Risks and uncertainties” set out on pages 27 to 28, and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the financial
information.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying condensed consolidated
interim financial information is not prepared, in all material
respects, in accordance with International Accounting Standard 34
Interim Financial Reporting as adopted by the European Union
and the Disclosure and Transparency Rules of the United Kingdom’s
Financial Conduct Authority.
PricewaterhouseCoopers LLP
Public Accountants and Chartered Accountants
Singapore,
1 August 2019
XP Power Limited
Condensed Consolidated Statement of
Comprehensive Income
For the six months ended 30 June 2019
| £ Millions |
Note |
Six months
ended
30 June 2019
(Unaudited) |
Six months ended
30 June 2018
(Unaudited) |
|
|
|
|
| Revenue |
5 |
98.9 |
93.2 |
| Cost of sales |
|
(54.8) |
(49.7) |
| Gross profit |
|
44.1 |
43.5 |
|
|
|
|
| Expenses |
|
|
|
| Distribution and marketing |
|
(20.3) |
(18.3) |
| Administrative |
|
(3.0) |
(1.1) |
| Research and development |
|
(6.3) |
(5.2) |
| Operating profit |
|
14.5 |
18.9 |
|
|
|
|
| Finance charge |
|
(1.6) |
(0.4) |
| Profit before income tax |
|
12.9 |
18.5 |
|
|
|
|
| Income tax expense |
6 |
(2.5) |
(3.8) |
Profit after income tax |
|
10.4 |
14.7 |
|
|
|
|
| Other comprehensive
income: |
|
|
|
|
|
|
|
| Items that may be reclassified
subsequently to profit or loss: |
|
|
|
| Cash flow hedges |
|
* |
0.5 |
| Exchange differences on translation
of foreign operations |
|
(0.2) |
1.3 |
|
|
(0.2) |
1.8 |
| Items that will not be
reclassified subsequently to profit or loss: |
|
|
|
| Currency translation differences
arising from consolidation |
|
* |
- |
| Other comprehensive
(loss)/income, net of tax |
|
(0.2) |
1.8 |
| Total comprehensive
income |
|
10.2 |
16.5 |
|
|
|
|
| Profit attributable to: |
|
|
|
| - Equity holders of the Company |
|
10.3 |
14.6 |
| - Non-controlling interests |
|
0.1 |
0.1 |
|
|
10.4 |
14.7 |
|
|
|
|
| Total comprehensive income
attributable to: |
|
|
|
| - Equity holders of the Company |
|
10.1 |
16.3 |
| - Non-controlling interests |
|
0.1 |
0.2 |
|
|
10.2 |
16.5 |
Earnings per share attributable to equity holders of the
Company |
|
Pence per
Share |
Pence per
Share |
|
|
|
|
| Basic |
8 |
53.8 |
76.4 |
| Diluted |
8 |
52.8 |
74.9 |
|
|
|
|
* Balance is less than £100,000.
The above condensed consolidated
statement of comprehensive income should be read in conjunction
with the accompanying notes.
XP Power Limited
Condensed Consolidated Balance
Sheet
As at 30 June
2019
| £ Millions |
Note |
At
30
June 2019
(Unaudited) |
At
31
December
2018 |
| ASSETS |
|
|
|
| Current
assets |
|
|
|
| Corporate tax
recoverable |
|
0.8 |
0.8 |
| Cash and cash
equivalents |
|
10.8 |
11.5 |
| Inventories |
|
51.2 |
56.5 |
| Trade receivables |
|
33.2 |
33.0 |
| Other current
assets |
|
3.5 |
3.3 |
| Derivative financial
instruments |
|
0.1 |
* |
| Total current
assets |
|
99.6 |
105.1 |
| Non-current
assets |
|
|
|
| Goodwill |
|
54.0 |
54.1 |
| Intangible assets |
9 |
46.6 |
43.6 |
| Property, plant and
equipment |
|
31.4 |
30.7 |
| Right-of-use
assets |
11 |
5.5 |
- |
| Deferred income tax
assets |
|
1.0 |
0.6 |
| ESOP loans to
employees |
|
0.1 |
0.2 |
| Total non-current
assets |
|
138.6 |
129.2 |
| Total
assets |
|
238.2 |
234.3 |
|
LIABILITIES |
|
|
|
| Current
liabilities |
|
|
|
| Current income tax
liabilities |
|
3.6 |
4.2 |
| Trade and other
payables |
|
22.4 |
22.4 |
| Derivative financial
instruments |
|
0.1 |
0.2 |
| Lease liabilities |
11 |
1.9 |
- |
| Total current
liabilities |
|
28.0 |
26.8 |
| Non-current
liabilities |
|
|
|
| Accrued
consideration |
|
1.4 |
1.4 |
| Borrowings |
|
61.2 |
63.5 |
| Deferred income tax
liabilities |
|
5.4 |
4.7 |
| Provisions |
|
0.1 |
0.5 |
| Lease liabilities |
11 |
3.8 |
- |
| Total non-current
liabilities |
|
71.9 |
70.1 |
| Total
liabilities |
|
99.9 |
96.9 |
| NET ASSETS |
|
138.3 |
137.4 |
| EQUITY |
|
|
|
| Equity attributable
to equity holders of the Company |
|
|
|
| Share capital |
|
27.2 |
27.2 |
| Treasury shares and
share option reserve |
|
2.1 |
1.1 |
| Merger reserve |
|
0.2 |
0.2 |
| Hedging reserve |
|
0.1 |
0.1 |
| Translation
reserve |
|
3.8 |
4.0 |
| Other reserve |
|
(0.8) |
(0.8) |
| Retained earnings |
|
104.8 |
104.6 |
|
|
137.4 |
136.4 |
| Non-controlling
interests |
|
0.9 |
1.0 |
| TOTAL
EQUITY |
|
138.3 |
137.4 |
* Balance is less than £100,000.
The above condensed consolidated
balance sheet should be read in conjunction with the accompanying
notes.
XP Power Limited
Condensed Consolidated Statement of
Changes in Equity
For the six months ended 30 June 2019
£ Millions
|
|
|
|
Attributable to equity holders of the Company |
|
|
|
Note |
Share
capital |
Treasury shares and
share option reserve |
Merger
reserve |
Hedging
reserve |
Translation
reserve |
Other
reserve |
Retained
earnings |
Total |
Non-controlling
interests |
Total
Equity |
Balance at 1 January 2018 |
|
27.2 |
0.4 |
0.2 |
(0.2) |
(0.4) |
(0.8) |
89.6 |
116.0 |
0.9 |
116.9 |
| Changes in accounting
policy |
|
- |
- |
- |
- |
- |
- |
0.4 |
0.4 |
- |
0.4 |
| Restated total equity as at 1
January 2018 (unaudited) |
|
27.2 |
0.4 |
0.2 |
(0.2) |
(0.4) |
(0.8) |
90.0 |
116.4 |
0.9 |
117.3 |
| Sale of treasury shares |
|
- |
0.7 |
- |
- |
- |
- |
(0.2) |
0.5 |
- |
0.5 |
| Employee share option plan expenses,
net of tax |
|
- |
0.3 |
- |
- |
- |
- |
- |
0.3 |
- |
0.3 |
| Dividends paid |
7 |
- |
- |
- |
- |
- |
- |
(9.0) |
(9.0) |
(0.2) |
(9.2) |
| Exchange difference arising from
translation of financial statements of foreign operations |
|
- |
- |
- |
- |
1.2 |
- |
- |
1.2 |
0.1 |
1.3 |
| Net change in cash flow hedges |
|
- |
- |
- |
0.5 |
- |
- |
- |
0.5 |
- |
0.5 |
| Profit for the year |
|
- |
- |
- |
- |
- |
- |
14.6 |
14.6 |
0.1 |
14.7 |
| Total comprehensive income for the
period |
|
- |
- |
- |
0.5 |
1.2 |
- |
14.6 |
16.3 |
0.2 |
16.5 |
Balance at 30 June
2018
(unaudited) |
|
27.2 |
1.4 |
0.2 |
0.3 |
0.8 |
(0.8) |
95.4 |
124.5 |
0.9 |
125.4 |
Balance at 1 January 2019 |
|
27.2 |
1.1 |
0.2 |
0.1 |
4.0 |
(0.8) |
104.6 |
136.4 |
1.0 |
137.4 |
| Sale of treasury shares |
|
- |
0.3 |
- |
- |
- |
- |
(0.1) |
0.2 |
- |
0.2 |
| Employee share option plan expenses,
net of tax |
|
- |
0.7 |
- |
- |
- |
- |
- |
0.7 |
- |
0.7 |
| Dividends paid |
7 |
- |
- |
- |
- |
- |
- |
(10.0) |
(10.0) |
(0.2) |
(10.2) |
| Exchange difference arising from
translation of financial statements of foreign operations |
|
- |
- |
- |
- |
(0.2) |
- |
- |
(0.2) |
- |
(0.2) |
| Net change in cash flow hedges |
|
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
| Profit for the year |
|
- |
- |
- |
- |
- |
- |
10.3 |
10.3 |
0.1 |
10.4 |
| Total comprehensive income for the
period |
|
- |
- |
- |
- |
(0.2) |
- |
10.3 |
10.1 |
0.1 |
10.2 |
Balance at 30 June
2019
(unaudited) |
|
27.2 |
2.1 |
0.2 |
0.1 |
3.8 |
(0.8) |
104.8 |
137.4 |
0.9 |
138.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above condensed consolidated
statement of changes in equity should be read in conjunction with
the accompanying notes.
XP Power Limited
Condensed Consolidated Statement of
Cash Flows
For the six months ended 30 June 2019
| £ Millions |
|
Six months
ended
30 June 2019
(Unaudited) |
Six months ended
30 June 2018
(Unaudited) |
| Cash flows from operating
activities |
|
|
|
|
|
|
|
| Profit after income tax |
|
10.4 |
14.7 |
| Adjustments for: |
|
|
|
| - Income tax
expense |
|
2.5 |
3.8 |
| - Amortisation and
depreciation |
|
6.1 |
3.9 |
| - Finance
charge |
|
1.6 |
0.4 |
| - Equity award
charges |
|
0.5 |
0.3 |
| - Fair value
(gain)/loss on derivative financial instruments |
|
(0.2) |
0.4 |
| - Unrealised
currency translation (gain)/loss |
|
(0.3) |
0.7 |
|
|
|
|
| Change in the working capital, net
of effects from acquisitions: |
|
|
|
| - Inventories |
|
5.3 |
(10.1) |
| - Trade and other
receivables |
|
(0.6) |
(4.5) |
| - Trade and other
payables |
|
0.4 |
6.1 |
| - Provision for
liabilities and other charges |
|
(0.5) |
0.1 |
| Cash generated from
operations |
|
25.2 |
15.8 |
| Income tax paid |
|
(2.6) |
(2.4) |
| Net cash provided
by operating activities |
|
22.6 |
13.4 |
|
|
|
|
| Cash flows from investing
activities |
|
|
|
|
|
|
|
| Acquisition of subsidiary, net of
cash acquired |
|
- |
(35.6) |
| Purchases and construction of
property, plant and equipment |
|
(2.6) |
(2.8) |
| Capitalisation of research and
development expenditure |
|
(4.4) |
(2.8) |
| Capitalisation of intangible
software and software under development |
|
(1.9) |
- |
| Proceeds from disposal of property,
plant and equipment |
|
0.1 |
- |
| Repayment of ESOP loans |
|
0.1 |
0.1 |
| Net cash used in
investing activities |
|
(8.7) |
(41.1) |
|
|
|
|
| Cash flows from financing
activities |
|
|
|
|
|
|
|
| Proceeds from borrowings |
|
- |
37.3 |
| Repayment of borrowings |
|
(2.4) |
(3.5) |
| Payment of lease liabilities |
|
(0.8) |
- |
| Sale of treasury shares |
|
0.3 |
0.7 |
| Interest paid |
|
(1.4) |
(0.4) |
| Dividends paid to equity holders of
the Company |
|
(10.0) |
(9.0) |
| Dividends paid to non-controlling
interests |
|
(0.2) |
(0.2) |
| Net cash (used
in)/provided by financing activities |
|
(14.5) |
24.9 |
|
|
|
|
| Net decrease in cash and cash
equivalents |
|
(0.6) |
(2.8) |
| Cash and cash equivalents at
beginning of financial period |
|
11.5 |
15.0 |
| Effects of currency translation on
cash and cash equivalents |
|
(0.1) |
(0.1) |
| Cash and cash equivalents at end
of financial period |
|
10.8 |
12.1 |
The above condensed consolidated
statement of cash flows should be read in conjunction with the
accompanying notes.
XP Power Limited
Notes to the condensed consolidated
financial statements
1. General
information
XP Power Limited (the
“Company”) is listed on the London Stock Exchange and incorporated
and domiciled in Singapore. The address of its registered
office is 401 Commonwealth Drive, Lobby B #02-02, Haw Par
Technocentre, Singapore
149598.
The nature of the Group’s
operations and its principal activities is to provide power supply
solutions to the electronics industry.
These condensed
consolidated interim financial statements are presented in Pounds
Sterling (GBP).
2. Basis of
preparation
The condensed consolidated
interim financial statements for the period ended 30 June 2019 have been prepared in accordance
with the Disclosure and Transparency Rules of the United Kingdom’s
Financial Conduct Authority and with International Accounting
Standards (“IAS”) 34 Interim Financial Reporting as adopted
by the European Union.
The condensed consolidated
interim financial statements should be read in conjunction with the
annual financial statements for the year ended 31 December 2018 which have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union.
3. Going
concern
The directors, after making enquiries, are of the view, as at
the time of approving the financial statements, that there is a
reasonable expectation that the Group will have adequate resources
to continue operating for the foreseeable future and therefore the
going concern basis has been adopted in preparing these financial
statements.
4. Accounting
policies
The condensed consolidated
interim financial statements have been prepared under the
historical cost convention except for the fair value of derivatives
in accordance with IFRS 9 Financial Instruments.
The same accounting
policies, presentation and methods of computation are followed in
these condensed consolidated interim financial statements as were
applied in the presentation of the Group’s financial statements for
the year ended 31 December 2018
except for the adoption of new and amended standards as set out
below.
New and amended
standards adopted by the Group
A number of new or amended standards became applicable for the
current reporting period and the
Group had to change its accounting policies and make modified
retrospective adjustments as a result of adopting IFRS 16
Leases.
The impact of the adoption
of the new lease standard and accounting policy is disclosed in
note 11. The other standards did not have any impact on the
Group’s accounting policies and did not require retrospective
adjustments.
5. Segmented and
revenue information
The Board of Directors
considers and manages the business on a geographic basis.
Management manages and monitors the business based on the
three primary geographical areas: North
America, Europe and
Asia. All geographic
locations market the same class of products to their respective
customer base.
Revenue
The Group derives revenue
from the transfer of goods at a point in time in the following
major product lines and geographical regions.
Analysis by class of
customer
The revenue by class of
customer is as follows:
| Six
months ended 30 June 2019 |
|
|
|
|
| £ Millions |
|
|
|
|
|
|
Europe |
North America |
Asia |
Total |
|
| Primary
geographical markets |
|
|
|
|
|
| Semiconductor Equipment
Manufacturing |
0.2 |
17.1 |
0.2 |
17.5 |
|
| Technology |
3.0 |
7.3 |
0.5 |
10.8 |
|
| Industrial |
24.1 |
15.4 |
7.7 |
47.2 |
|
| Healthcare |
5.6 |
16.5 |
1.3 |
23.4 |
|
|
32.9 |
56.3 |
9.7 |
98.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended 30
June 2018 |
|
|
|
|
| £ Millions |
|
|
|
|
|
Europe |
North
America |
Asia |
Total |
| Primary
geographical markets |
|
|
|
|
| Semiconductor
Equipment Manufacturing |
0.2 |
24.2 |
0.5 |
24.9 |
| Technology |
2.9 |
5.6 |
0.5 |
9.0 |
| Industrial |
21.0 |
14.0 |
4.1 |
39.1 |
| Healthcare |
5.6 |
13.2 |
1.4 |
20.2 |
|
29.7 |
57.0 |
6.5 |
93.2 |
|
|
|
|
|
5. Segmented and
revenue information (continued)
Reconciliation of segment
results to profit after income tax:
| £ Millions |
Six months
ended
30 June 2019
(Unaudited) |
Six months ended
30 June 2018 (Unaudited) |
|
|
|
| Europe |
8.8 |
8.3 |
| North America |
15.6 |
20.1 |
| Asia |
3.3 |
2.1 |
| Segment results |
27.7 |
30.5 |
| Research and development |
(4.5) |
(4.0) |
| Manufacturing |
(2.2) |
(1.7) |
| Corporate cost from operating
segment |
(2.8) |
(4.1) |
| Adjusted operating
profit |
18.2 |
20.7 |
| Finance charge |
(1.6) |
(0.4) |
| Specific items |
(3.7) |
(1.8) |
| Profit before income tax |
12.9 |
18.5 |
| Income tax expense |
(2.5) |
(3.8) |
| Profit after income tax |
10.4 |
14.7 |
| £ Millions |
At 30
June 2019
(Unaudited) |
At 31
December
2018 |
| Total
assets |
|
|
| Europe |
30.8 |
28.8 |
| North America |
128.9 |
128.7 |
| Asia |
76.7 |
75.4 |
| Segment assets |
236.4 |
232.9 |
| Unallocated deferred and current
income tax |
1.8 |
1.4 |
| Total assets |
238.2 |
234.3 |
Reconciliation of
adjusted measures
The Group presents adjusted operating profit and adjusted profit
before tax by making adjustments 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, amortisation of
intangible assets arising from business combinations,
reorganisation costs, and ERP implementation costs.
In addition, the Group presents an adjusted profit after tax
measure by making adjustments 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.
5.
Segmented and revenue information (continued)
Reconciliation of adjusted measures (continued)
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 and a reconciliation of profit before
tax to adjusted profit before tax.
(i) Reconciliation of operating profit to adjusted
operating profit:
| £
Millions |
Six
months ended 30 June 2019 (Unaudited) |
Six
months ended 30 June 2018 (Unaudited) |
| Operating profit |
14.5 |
18.9 |
|
|
|
| Adjusted for: |
|
|
| Acquisition costs |
0.4 |
0.4 |
| Costs related to ERP
implementation |
0.5 |
- |
Amortisation of intangible assets due to business
combination |
1.6 |
1.0 |
| Changes in accounting
policy |
- |
0.4 |
| Legal costs (refer to
note 10) |
1.2 |
- |
|
3.7 |
1.8 |
| Adjusted operating
profit |
18.2 |
20.7 |
|
|
|
| Adjusted operating
margin |
18.4% |
22.2% |
|
|
|
(ii) Reconciliation of profit before tax to adjusted profit
before tax:
| Profit before tax
(“PBT”) |
12.9 |
18.5 |
|
|
|
| Adjusted for: |
|
|
| Acquisition costs |
0.4 |
0.4 |
| Costs related to ERP
implementation |
0.5 |
- |
Amortisation of intangible assets due to business
combination |
1.6 |
1.0 |
| Changes in accounting
policy |
- |
0.4 |
| Legal costs (refer to
note 10) |
1.2 |
- |
|
3.7 |
1.8 |
| Adjusted
PBT |
16.6 |
20.3 |
6. Taxation
Income tax expense is recognised based on management’s best
estimate of the weighted average annual income tax expected for the
full financial year. The effective tax rate as at
30 June 2019 is 19.4% (2018:
20.5%).
7. Dividends
Amounts recognised as distributions to equity holders of the
Company in the period:
|
Six
months ended
30 June 2019
(Unaudited) |
Six
months ended
30 June 2018
(Unaudited) |
|
Pence per
share |
£ Millions |
Pence
per share |
£ Millions |
|
|
|
|
|
| Prior year third quarter dividend
paid |
19.0 |
3.7 |
18.0 |
3.4 |
| Prior year final dividend paid |
33.0 |
6.3 |
29.0 |
5.6 |
| Total |
52.0 |
10.0 |
47.0 |
9.0 |
7. Dividends
(continued)
The dividends paid recognised in the interim financial
statements relate to the third quarter and final dividends for
2018.
The first quarterly dividend of 17.0
pence per share (2018: 16.0
pence per share) was paid on 11 July
2019. A second quarterly dividend of 18.0 pence per share (2018: 17.0 pence per share) will be paid on
10 October 2019 to shareholders on
the register at 13 September
2019.
8. Earnings per
share
Earnings per share attributable to equity holders of the company
arise from continuing operations as follows:
| £ Millions |
Six
months ended
30 June 2019
(Unaudited) |
Six
months ended
30 June 2018
(Unaudited) |
| Earnings |
|
|
| Earnings for the purposes of basic
and diluted earnings per share (profit for the period attributable
to equity holders of the company) |
10.3 |
14.6 |
| Amortisation of intangibles
associated due to business combinations |
1.6 |
1.0 |
| Acquisition costs |
0.4 |
0.4 |
| Non-recurring tax benefits |
(0.5) |
(0.1) |
| Costs related to ERP
implementation |
0.5 |
- |
| Changes in accounting policy |
- |
0.4 |
| Legal costs (refer to note 10) |
1.2 |
- |
| Earnings for adjusted earnings
per share |
13.5 |
16.3 |
| Number of shares |
|
|
| Weighted average number of shares
for the purposes of basic earnings per share (thousands) |
19,145 |
19,114 |
|
|
|
| Effect of potentially dilutive share
options (thousands) |
359 |
369 |
|
|
|
| Weighted average number of shares
for the purposes of dilutive earnings per share (thousands) |
19,504 |
19,483 |
|
|
|
| Earnings per share from
operations |
|
|
| Basic |
53.8p |
76.4p |
| Basic adjusted |
70.5p |
85.3p |
| Diluted |
52.8p |
74.9p |
| Diluted adjusted |
69.2p |
83.7p |
* Balance is less than £100,000.
9. Intangible
assets
|
Development costs |
Brand |
Trademarks |
Technology |
Customer relationships |
Customer contracts |
Intangible software |
Intangible software under development |
Total |
| £ Millions |
|
|
|
|
|
|
|
|
|
| Cost |
|
|
|
|
|
|
|
|
|
| At 31 December
2018 |
36.4 |
1.0 |
1.0 |
5.2 |
18.6 |
0.6 |
0.2 |
1.7 |
64.7 |
| Additions |
4.4 |
- |
- |
- |
- |
- |
* |
1.9 |
6.3 |
| Foreign currency
translation |
* |
* |
* |
* |
* |
* |
* |
* |
0.2 |
| At 30 June
2019 |
40.9 |
1.0 |
1.0 |
5.2 |
18.6 |
0.6 |
0.3 |
3.6 |
71.2 |
|
Amortisation |
|
|
|
|
|
|
|
|
|
| At 31 December
2018 |
16.3 |
0.1 |
0.9 |
0.8 |
2.4 |
0.6 |
* |
- |
21.1 |
| Charge for the
year |
1.8 |
0.1 |
- |
0.3 |
1.2 |
- |
* |
- |
3.4 |
| Foreign currency
translation |
* |
* |
- |
* |
* |
* |
* |
- |
0.1 |
| At 30 June
2019 |
18.1 |
0.2 |
0.9 |
1.1 |
3.6 |
0.6 |
0.1 |
- |
24.6 |
Carrying amount |
|
|
|
|
|
|
|
|
|
| At 30 June
2019 |
22.8 |
0.8 |
0.1 |
4.1 |
15.0 |
- |
0.2 |
3.6 |
46.6 |
| At 31 December
2018 |
20.1 |
0.9 |
0.1 |
4.4 |
16.2 |
- |
0.2 |
1.7 |
43.6 |
* Balance is less than £100,000.
The amortisation period for development costs incurred on the
Group’s products varies between three and seven years according to
the expected useful life of the products being developed.
Amortisation commences when the product is ready and available
for use.
The remaining amortisation period for customer relationships
ranges from three to nine years.
10. Contingent
liabilities
The Group is involved in a non-customer related legal dispute in
North America, which is currently
in mediation. No provision in relation to the dispute has
been recognised in these condensed interim financial statements as
it is not probable that an outflow of economic benefits will occur,
and the amount of outflow, if any, cannot be estimated
reliably.
11. Changes in accounting
policies
This note explains the impact of the adoption of IFRS 16
Leases on the Group’s financial statements and discloses the
new accounting policies that have been applied from 1 January 2019 below.
The Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives
for the 2018 reporting period, as permitted under the specific
transitional provisions in the standard. The
reclassifications and the adjustments arising from the new leasing
rules are therefore recognised in the opening balance sheet on
1 January 2019.
11. Changes in accounting
policies (continued)
(a) Adjustments recognised
on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
‘operating leases’ under the principles of IAS 17 Leases.
These liabilities were measured at the present value of the
remaining lease payments, discounted using the lessee’s incremental
borrowing rate as of 1 January 2019.
The weighted average lessee’s incremental borrowing rate
applied to the lease liabilities on 1
January 2019 was 5.3%.
| £ Millions |
|
| Operating lease commitments
disclosed as at 31 December 2018 |
7.8 |
| Discounted using the lessee’s
incremental borrowing rate of 5.3% at the date of initial
application |
6.7 |
| (Less): short-term leases recognised
on a straight-line basis as expense |
(0.2) |
| (Less): low-value leases recognised
on a straight-line basis as expense |
(0.2) |
| Lease liability recognised as at
1 January 2019 |
6.3 |
|
1 January 2019 |
| Current |
1.5 |
| Non-current |
4.8 |
| Total lease liability |
6.3 |
The associated right-of-use
assets for property leases and other right-of-use assets were
measured at the amount equal to the lease liability, adjusted by
the amount of any prepaid or accrued lease payments relating to
that lease recognised in the balance sheet as at 31 December 2018. There were no onerous
lease contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
The recognised right-of-use
assets relate to the following types of assets:
| £ Millions |
30 June 2019 |
1 January 2019 |
| Properties |
5.3 |
6.1 |
| Equipment |
0.2 |
* |
| Total right-of-use
assets |
5.5 |
6.1 |
|
|
|
* Balance is less than £100,000.
The change in accounting
policy affected the following items in the balance sheet on
1 January 2019:
i) right-of-use
assets – increase by £6.1 million
ii) lease liabilities
– increase by £6.3 million
iii) accrued lease
payments – decrease by £0.2 million
There was no impact on
retained earnings on 1 January
2019.
11. Changes in accounting
policies (continued)
(a) Adjustments recognised
on adoption of IFRS 16 (continued)
Practical expedients applied
In applying IFRS 16 for the first time, the group has used the
following practical expedients permitted by the standard:
· the use of a single discount rate to a
portfolio of leases with reasonably similar characteristics;
· reliance on previous assessments on whether
leases are onerous;
· the accounting for operating leases with a
remaining lease term of less than 12 months as
at 1 January 2019 as short-term
leases;
· the exclusion of initial direct costs for
the measurement of the right-of-use asset at the date
of initial application;
· the use of hindsight in determining the
lease term where the contract contains options to
extend or terminate the
lease; and
· for all leases, the Group has elected not to
separate lease and non-lease components, and instead accounts for
these as a single lease component.
The Group has also elected not to reassess whether a contract
is, or contains, a lease at the date of initial application.
Instead, for contracts entered into before the transition
date, the Group relied on its assessment made applying IAS 17 and
IFRIC 4 Determining whether an Arrangement contains a
Lease.
(b) The
Group’s leasing activities and how these are accounted for
The Group leases various offices, warehouses and equipment.
Rental contracts are typically made for fixed periods of 2 to
6 years but may have extension options as described below.
Lease terms are negotiated on an individual basis and contain
a wide range of different terms and conditions. The lease
agreements do not impose any covenants, but leased assets may not
be used as security for borrowings purposes.
Until the 2018 financial year, leases of property, plant and
equipment were classified as operating leases. Payments made
under operating leases (net of any incentives received from the
lessor) were charged to profit or loss on a straight-line basis
over the period of the lease.
From 1 January 2019, leases are
recognised as a right-of-use asset and a corresponding liability at
the date at which the leased asset is available for use by the
Group. Each lease payment is allocated between the liability
and finance cost. The finance cost is charged to profit or
loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each
period. The right-of-use asset is depreciated over the
shorter of the asset’s useful life and the lease term on a
straight-line basis.
Assets and liabilities arising from a lease are initially measured
on a present value basis. Lease liabilities include the net
present value of the following lease payments:
· fixed payments (including in-substance
fixed payments), less any lease incentives receivable;
· variable lease payments that are based
on an index or a rate;
· amounts expected to be payable by the
lessee under residual value guarantees;
· the exercise price of a purchase
option if the lessee is reasonably certain to exercise that
option; and
· payments of penalties for terminating
the lease, if the lease term reflects the lessees exercising
that option.
The lease payments are discounted using the interest rate implicit
in the lease. If that rate cannot be determined, the lessee’s
incremental borrowing rate is used, being the rate that the lessee
would have to pay to borrow the funds necessary to obtain an asset
of similar value in a similar economic environment with similar
terms and conditions.
11. Changes in
accounting policies (continued)
(b) The Group’s leasing
activities and how these are accounted for (continued)
Right-of-use assets are measured at cost comprising the
following:
· the amount of the initial measurement of
lease liability;
· any lease payments made at or before the
commencement date less any lease incentives
received;
· any initial direct costs; and
· restoration costs.
Payment associated with short-term leases and leases of
low-value assts are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with
a lease term of 12 months or less. Low-value assets comprise
of IT equipment.
Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group. These terms
are used to maximise operational flexibility in terms of managing
contracts. The majority of extension and termination options
held are exercisable only by the Group and not by the respective
lessor.
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option.
Extension options (or periods after termination options) are only
included in the lease term if the lease is reasonably certain to be
extended (or not terminated).
Risks and uncertainties
Like many other international businesses, the Group is exposed
to a number of risks and uncertainties which might have a material
effect on its financial performance. These
include:
An event that
causes a disruption to one of our manufacturing facilities
An event that results in the temporary or permanent loss of a
manufacturing facility would be a serious issue. As the Group
manufactures 78% of revenues, this would undoubtedly cause at least
a short-term loss of revenues and profits and disruption to our
customers and therefore damage to reputation.
Product recall
A product recall due to a quality or safety issue would have
serious repercussions to the business in terms of potential cost
and reputational damage as a supplier to critical systems.
Shortage,
non-availability or technical fault with regard to key electronic
components
The Group is reliant on the supply, availability and reliability
of key electronic components. If there is a shortage,
non-availability or technical fault with any of the key electronic
components, this may impair the Group’s ability to operate its
business efficiently and lead to potential disruption to its
operations and revenues.
Competition from
new market entrants and new technologies
The power supply market is diverse and competitive. The
Directors believe that the development of new technologies could
give rise to significant new competition to the Group, which may
have a material effect on its business. At the lower end of
the Group’s target market, in terms of both power range and
programme size, the barriers to entry are lower and there is,
therefore, a risk that competition could quickly increase
particularly from emerging low-cost manufacturers in Asia.
Fluctuations of
revenues, expenses and operating results due to an economic
shock
The revenues, expenses and operating results of the Group could
vary significantly from period to period as a result of a variety
of factors, some of which are outside its control. These
factors include general economic conditions; adverse movements in
interest rates; conditions specific to the market; seasonal trends
in revenues, capital expenditure and other costs and the
introduction of new products or services by the Group, or by their
competitors. In response to a changing competitive
environment, the Group may elect from time to time to make certain
pricing, service, marketing decisions or acquisitions that could
have a short-term material adverse effect on the Group’s revenues,
results of operations and financial condition.
Dependence on key
customers/suppliers
The Group is dependent on retaining its key customers and
suppliers. Should the Group lose a number of its key
customers or key suppliers, this could have a material impact on
the Group’s financial condition and results of operations.
However, for the six months ended 30
June 2019, no one customer accounted for more than 9% of
revenue.
Cyber security /
Information systems failure
The Group is reliant on information technology in multiple
aspects of the business from communications to data storage.
Assets accessible online are potentially vulnerable to theft
and customer channels are vulnerable to disruption. Any
failure or downtime of these systems or any data theft could have a
significant adverse impact on the Group’s reputation or on the
results of operations.
Risks relating to
regulation, compliance and taxation
The Group operates in multiple jurisdictions with applicable
trade and tax regulations that vary. Failing to comply with
local regulations or a change in legislation could impact the
profits of the Group. In addition, the effective tax rate of
the Group is affected by where its profits fall geographically.
The Group effective tax rate could therefore fluctuate over
time and have an impact on earnings and potentially its share
price.
Risks and uncertainties
(continued)
Strategic risk
associated with valuing or integrating new acquisitions
The Group may elect from time to time to make strategic
acquisitions. A degree of uncertainty exists in valuation and
in particular in evaluating potential synergies.
Post-acquisition risks arise in the form of change of control
and integration challenges. Any of these could have an effect
on the Group’s revenues, results of operations and financial
condition.
Loss of key
personnel or failure to attract new personnel
The future success of the Group is substantially dependent on
the continued services and continuing contributions of its
Directors, senior management and other key personnel. The
loss of the services of key employees could have a material adverse
effect on own business.
Exposure to
exchange rate fluctuations
The Group deals in many currencies for both its purchases and
sales including US Dollars, Euros and its reporting currency Pounds
Sterling. In particular, North
America represents an important geographic market for the
Group where virtually all the revenues are denominated in US
Dollars. The Group also sources components in US Dollars and
the Chinese Renminbi. The Group therefore has an exposure to
foreign currency fluctuations. This could lead to material
adverse movements in reported earnings.
Directors’ responsibility
statement
The interim results were approved by the Board of Directors on
1 August 2019.
The Directors confirm to the best of their knowledge that:
·
the unaudited interim results have been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the
European Union; and
·
the interim results include a fair view of the information required
by DTR 4.2.7 (indication of important events during the first six
months and description of principal risks and uncertainties for the
remaining six months of the year) and DTR 4.2.8 (disclosure of
related party transactions and changes therein).
The Directors of XP Power Limited are as follows:
| James Peters |
Non-Executive Chairman |
| Duncan Penny |
Chief Executive Officer |
| Gavin Griggs |
Chief Financial Officer |
| Andy Sng |
Executive Vice President, Asia |
| Terry Twigger |
Senior Non-Executive Director |
| Polly Williams |
Non-Executive Director |
Signed on behalf of the Board by
James
Peters
Duncan Penny
Non-Executive
Chairman
Chief Executive Officer
1 August 2019