REG-XP Power Ltd: Annual Financial Report <Origin Href="QuoteRef">XPP.L</Origin> - Part 1
23/02/2015 07:01
23 February 2015
XP Power Limited
("XP Power" or "the Group")
Annual Results for the year ended 31 December 2014
XP Power, one of the world's leading developers and manufacturers of critical power control components for the electronics industry, today announces its annual results for the year ended 31 December 2014.
Highlights
Year ended Year ended
31 December 31 December Change
2014 2013
Order intake £105.1m £103.7m +1%
Revenue £101.1m £101.1m -
Gross margin 49.6% 49.1% +50 bps
Profit before tax £24.3m £22.9m +6%
Profit after tax £19.5m £18.4m +6%
Diluted earnings per share 101.1p 95.1p +6%
Operating cash flow £21.8m £20.2m +8%
Net cash/(net debt) £1.3m (£3.5m) -
Final dividend per share 22.0p 19.0p +16%
Total dividend per share 61.0p 55.0p +11%
Proven strategy of developing and manufacturing our own range of market leading
products produced another year of strong progress
First complete power converters manufactured at the Vietnam facility
Order intake increased to £105.1 million (2013: £103.7 million) setting a new
record for the Group, an increase of 6% in constant currency
Revenues for the year were ahead by 5% in constant currency at £101.1 million
XP Power's own-design revenues increased to a record £67.2 million (2013: £64.2
million) an increase of 11% in constant currency and representing a record 66%
of revenue
Sales of high efficiency products increased by 36% to £18.6 million
representing 18% of revenues (2013: £13.7 million or 14% of revenues)
Strong earnings and continued strong cash flows resulted in a net cash position
of £1.3 million at year-end (2013: net debt of £3.5 million)
Total dividend for the year increased by 11% to 61 pence per share (2013: 55
pence per share)
Successful repositioning as a designer and manufacturer leaves the Group well
positioned to continue to take market share
James Peters, Chairman, commented:
"2014 was a year of significant progress which saw us again achieve underlying
growth in revenues and earnings, while taking further market share."
"While the global economic outlook again looks mixed in the year ahead, we
believe we can grow our revenues as the new designs won in 2014 and prior years
enter production. We also plan to invest in additional sales and engineering
resources in North America during 2015 to help drive further growth."
"We enter 2015 with a strong balance sheet having closed 2014 debt free. This
places us in an excellent position to make bolt on acquisitions to further
broaden our product offering and engineering capabilities alongside our organic
growth. While we are not immune from capital equipment cycles and global
economic conditions we continue to expect further revenue growth in 2015."
Enquiries:
XP Power
Duncan Penny, Chief Executive
+44 (0)7776 178018
Jonathan Rhodes, Finance
Director +44 (0)
7500 944614
Citigate Dewe
Rogerson
+44 (0)20 7638 9571
Kevin Smith/Jos Bieneman
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-in power control solutions into the end products of
major blue chip OEMs, with a focus on the industrial (circa 50% of sales),
healthcare (circa 30% sales) and technology (circa 20% 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 27
locations in Europe, North America and Asia.
For further information, please visit www.xppower.com
Chairman's Statement
Our progress
2014 was a year of significant progress on many fronts despite economically
challenging conditions for the industrial electronics markets. Against this
backdrop, we have again achieved underlying growth in revenues and earnings and
taken share from the competition. In addition, we have strengthened the Board,
and enhanced our competitive position by producing the first complete power
converters in our Vietnam facility and implementing a new Customer Relationship
Management system across the Group.
Revenues were £101.1 million (2013: £101.1 million), representing a 5% increase
in constant currency. Order intake was £105.1 million (2013: £103.7 million)
setting a new record for the Group and representing an increase of 6% in
constant currency. Revenues from XP Power's own designed product - a key
indicator of our strategic progress - grew by 5% (or 11% in constant currency)
to £67.2 million (2013: £64.2 million) representing 66% of revenue (2013: 64%)
and setting another new record.
Gross margin improved to 49.6% (2013: 49.1%), driven by favourable product mix
and manufacturing efficiencies. Operating margins also improved to 24.2%
(2013: 23.0%).
As a result earnings per share for 2014 grew by 6% to 101.1 pence (2013: 95.1
pence), demonstrating the effectiveness of our business model. This growth,
combined with our usual strong free cash generation, allowed us to increase the
dividend once again while achieving the significant milestone of moving from a
net debt to a net cash position.
The compound average growth rate of earnings per share has been 20% over the
last five years.
Governance and Board of Directors
We have strengthened our Board of Directors significantly over the past year.
On 1 January 2014 Peter Bucher joined the Board as a Non-Executive Director.
Peter has excellent commercial and technical experience in the power converter
industry and has already made a valuable contribution to the business during
2014.
I am also pleased to welcome Terry Twigger to our Board with effect from 1
January 2015. As the former CEO of Meggitt PLC, Terry has a wealth of
international and public company experience in the engineering sector,
including numerous successful acquisitions. I am confident he will make a
significant contribution to the growth of our business.
Dividend
Our continued strong financial performance, strong cash flows and confidence in
the Group's long term prospects have enabled us to consistently increase
dividends.
In line with our progressive dividend policy, the Board is recommending a final
dividend of 22 pence per share for the fourth quarter of 2014. This dividend
will be payable to members on the register on 13 March 2015 and will be paid on
9 April 2015.
When combined with the interim dividends for the previous quarters, the total
dividend for the year will be 61 pence per share (2013: 55 pence), an increase
of 11%.
The compound average growth rate of our dividend has been 23% over the last
five years.
Our Talented People
We have significant strength and depth in our organisation.
Our executive management team, located on three different continents, is not
only talented but given a relatively young average age has an impressive
average length of service. The 11 person executive management team have an
average age of less than 45 and average length of service of over 15 years. The
breadth and depth of experience and collective teamwork of our people delivers
genuine value to our customers.
Building a Sustainable Business
The Group believes it leads its industry on environmental performance and
places sustainability at the heart of its business model.
We are building a sustainable business that can grow and prosper in the long
term, including how we support and provide genuine value to our customers, how
we treat and reward our people, through to our business ethics.
Outlook
While the global economic outlook again looks mixed in the year ahead, we
believe we can grow our revenues as the new designs won in 2014 and prior years
enter production. We also plan to invest in additional sales and engineering
resources in North America during 2015 to help drive further growth.
We enter 2015 with a strong balance sheet having closed 2014 in a debt free
position. This places us in an excellent position to make bolt on acquisitions
to further broaden our product offering and engineering capabilities.
James Peters
Chairman
Chief Executive's Review
Review of the year
The Group grew earnings despite continued mixed market conditions and currency
headwinds and achieved a record order intake of £105.1 million (2013: £103.7
million) in the year. We have also once again outpaced our competition and
taken further market share.
Revenues for 2014 on a reported basis were £101.1 million (2013: £101.1
million), reflecting the weakness of the US Dollar versus Sterling in 2014
compared with 2013. Revenues in constant currency were ahead by 5%.
As well as our strong financial performance we also made solid operational
progress, commencing production of the first complete power converters in our
Vietnam factory, providing additional manufacturing capacity at lower cost than
our existing Chinese facility. We have also implemented a new Customer
Relationship Management system to enhance collaborative working and provide
better customer service and knowledge to the business. Last but not least, we
introduced two class-leading ultra-high efficiency products - the CCB200 and
CCL400 power converters.
Progress across our marketplace
The Group's geographic performance was mixed across the year, largely
reflecting the varied macro economic conditions prevailing in North America,
Europe and Asia.
Our North American business has shown some clear momentum driven by strong
design wins in larger blue chip customers. Revenues in local currency (US
Dollars) were up by 8.3% to $84.9 million (2013: $78.4 million). North American
revenues increased by 2.6% on a reported basis to £51.3 million (2013: £50.0
million). The outlook in North America is encouraging and we will be expanding
our sales and power systems engineering resource in this market during 2015.
The European markets have been the most challenging, particularly those
countries where we already have a high market share, such as the UK. European
revenues declined by 3.7% to £42.2 million (2013: £43.8 million). Despite the
more challenging economic conditions in Germany and southern Europe, we saw
revenue growth in these areas driven by our ability to aggressively take market
share. We have also recently established a direct sales presence in Israel
where we see good medium term opportunities.
Asia also performed well, albeit off a smaller base. Asia revenues increased by
4.1% on a reported basis to £7.6 million (2013: £7.3 million). Underlying
revenues in US Dollar were up by 9.6% to $12.6 million (2013: $11.5 million).
The Asian business successfully replaced a large programme that went end of
life in 2013. We also added a direct sales presence in Japan during the year,
where our industry-leading product offering is already enabling us to win
against the strong local competition.
The sector splits of 2014 revenues were as follows: Industrial increased 3.4%
to £49.1 million (2013: £47.5 million), Healthcare increased 2.6% to £31.0
million (2013: £30.2 million) and Technology declined 10.3% to £21.0 million
(2013: £23.4 million). The 6% effect of a weaker US Dollar versus the Sterling
noted above is also applicable to the sector splits.
We believe the improvement we have seen in Industrial and Healthcare is
principally due to market share growth as new programmes have entered into
production. Industrial is the most diverse and fragmented sector for XP Power
but we can see good progress in industrial printing, test and measurement and
3D printing applications.
Our Healthcare segment continues to strengthen. We expect this sector will show
higher growth rates in the medium term as we are now approved vendors at all
the key players in this market, yet still have a relatively small share of
their available business. These customers in particular appreciate our service
and support, and the breadth of our ultra efficient, and therefore reliable,
products within our portfolio.
Technology continues to be the most challenging and cyclical segment. The
semiconductor equipment manufacturers, where we have a strong customer base
historically, are highly cyclical. We have also seen a decline in some other
technology programmes outside of the semiconductor equipment manufacturers,
which we continue to work to replace with new business.
Our global footprint enhancing our offer
Our North American business has shown greatest momentum during 2014 where we
have been able to engage with larger customers with larger individual programme
sizes. These customers are frequently leaders in their fields of expertise and
are often providing critical equipment into the specific industries they serve.
These customers recognise the value we add through our broad portfolio of
class-leading products backed up by excellent service and support. We are
therefore investing in the expansion of our sales and engineering support
capabilities in the North American market in 2015, with aim of accelerating
revenue growth from these larger customers.
The global nature of our customers means we can be working simultaneously on
two or even three continents on the same customer programme. The customer may
choose to design in one location and require the product to be shipped and
supported in others. Collaborative working with fast and efficient
communication and information sharing is therefore critical to offering the
high level of customer service for which we are renowned. For this reason we
upgraded our Customer Relationship Management system during the year,
implementing a brand new platform which was rolled out across the entire
organisation. In January 2015 we successfully also rolled out SAP to our North
American organization, which means we are running the same integrated system
across all our sales businesses. This will ensure our systems are efficient and
up to date - and capable of supporting our future growth.
Research and development
We have continued to invest in research and development to expand our portfolio
of ultra-high efficiency products. These products are inherently more reliable
as they do not require mechanical fans to cool them and continue to attract
strong customer interest.
In the first half of 2014 we released the CCB200, which is a compact product
able to produce 200 Watts of power without the need for fan cooling, and which
can operate at full power at up to 70 degrees Celsius without de-rating.
In the second half of 2014 the CCB200 was joined by the even more advanced
CCL400, which produces 400 Watts of power without the need for fan cooling.
These products have been well received by our customers and our design win
pipeline for both is strong.
Manufacturing progress
In 2012 we began production of magnetic components to incorporate into our
power converters at a new facility in Vietnam. Production volumes and quality
to date have both been very encouraging. In the fourth quarter of 2014 we
started to produce the first complete power converters in Vietnam, as planned.
This addition of a second full manufacturing site adds needed capacity and also
enhances our cost competitiveness owing to the lower costs in Vietnam compared
to our existing Chinese facility.
The quality from Vietnam has been excellent and we are pleased and excited with
the progress made at this facility and by its future potential.
Revenue and operating profit
Revenues for the twelve months ended 31 December 2014 of £101.1 million (2013:
£101.1 million) were ahead of those achieved in 2013 by 5% in constant
currency.
Exchange rate volatility has an impact on Group revenue as over 70% of revenues
are derived in US Dollars. The average rate of the US Dollar weakened against
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