REG-XP Power Ltd: Annual Financial Report <Origin Href="QuoteRef">XPP.L</Origin> - Part 2
23/02/2015 07:01
- Part 2: For the preceding part double click ID:nPRrN5EE8a
rates of overseas corporation tax 1.7 1.8
Deduction for loss/(gain) on employee share options 0.1 (0.3)
Adjustments in respect of prior year (0.3) (0.2)
Income tax expense 4.8 4.5
4. Dividends
Amounts recognised as distributions to equity holders in the period
2014 2013
Pence Pence
per £ per £
share Millions share Millions
Prior year third quarter dividend paid 13.0 * 2.5 12.0 2.3
Prior year final dividend paid 19.0 * 3.6 17.0 3.2
First quarter dividend paid 12.0 ^ 2.2 11.0 * 2.1
Second quarter dividend paid 13.0 ^ 2.5 12.0 * 2.3
Total 57.0 10.8 52.0 9.9
* Dividends in respect of 2013 (55.0p)
^ Dividends in respect of 2014 (61.0p)
The third quarter dividend of 14.0 pence per share was paid on 9 January 2015.
The proposed final dividend of 22.0 pence per share for the year ended 31
December 2014 is subject to approval by shareholders at the Annual General
Meeting scheduled for 2 April 2015 and has not been included as a liability in
these financial statements. It is proposed that the final dividend be paid on
9 April 2015 to members on the register as at 13 March 2015.
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:
2014 2013
£ Millions £ Millions
Earnings
Earnings for the purposes of basic and diluted earnings per share
(profit for the year attributable to equity shareholders of the parent) 19.4 18.2
Earnings for earnings per share 19.4 18.2
Number of shares
Weighted average number of shares for the purposes of basic earnings per share
(thousands) 18,998 18,990
Effect of potentially dilutive share options (thousands) 196 157
Weighted average number of shares for the purposes of
dilutive earnings per share (thousands) 19,194 19,147
Earnings per share from operations
Basic 102.1p 95.8p
Diluted 101.1p 95.1p
6. Borrowings
The borrowings are repayable as follows:
£ Millions 2014 2013
On demand or within one year 2.5 8.5
Total 2.5 8.5
The other principal features of the Group's borrowings are as follows:
1. Bank overdrafts are repayable on demand. The bank overdrafts are secured
on the assets of the Group. At 31 December 2014, the Group had an overdraft of
£2.5 million (2013: £1.2 million). In October 2014, the Group renewed its
annual working capital facility to US$15.0 million (2013: US$10.0 million).
This facility steps down to US$12.5 million from 1 January 2015 and to US$7.5
million from 1 July 2015. The facility is priced at the Bank Of Scotland (BOS)
base rate plus a margin of 1.75%.
2. The Group has fully repaid the term debt facility with Bank of Scotland
PLC with a final repayment of US$9.0 million (£5.5 million) in September 2014.
The term loan is priced at LIBOR plus a margin of 1.75% (2013: priced at LIBOR
plus a margin of 2%).
3. The Group has pledged all assets as collateral to secure banking
facilities granted to the Group.
Management assessed all loan covenants have been complied with as of 31
December 2014.
Deferred consideration
The Group owns 84.0% (2013: 84.0%) of the shares of Powersolve Electronics
Limited ("Powersolve") and had entered into an agreement on 19 December 2011 to
purchase the remaining 16.0% of the shares in 2017.
The commitment to purchase the remaining ownership has been accounted for as
deferred consideration and is calculated based on the expected future payment
which will be based on a predefined multiple of the earnings for 3 years ending
2016.
Principal risks and uncertainties
Board Responsibility
Like many other international businesses the Group is exposed to a number of
risks which may have a material effect on its financial performance. The Board
has overall responsibility for the management of risk and sets aside time at
its meetings to identify and address risks.
Risks Specific to the Industry in which the Group Operates
Fluctuations in foreign currency
The Group deals in many currencies for both its purchases and sales including
US Dollars, Euro 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 Yuan. The Group therefore has
an exposure to foreign currency fluctuations. This could lead to material
adverse movements in reported earnings.
Risk mitigation - The Group reviews balance sheet and cash flow currency
exposures and where considered appropriate uses forward exchange contracts to
hedge these exposures. Any forward contract requires the approval of both the
Chief Executive and Finance Director.
Competition
The power supply market is diverse and competitive in Asia, Europe and North
America. 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
the barriers to entry are low and there is, therefore, a risk that competition
could quickly increase particularly from emerging low cost manufacturers in
Asia.
Risk mitigation - The Group reviews activities of its competition, in
particular product releases, and stays up to date with new technological
advances in our industry especially those relating to new components and
materials. The Group also tries to keep its cost base competitive by operating
in low cost geographies where appropriate.
Risks Specific to the Group
Dependence on manufacturing facilities
The Group is dependent on its manufacturing facilities in China and Vietnam for
the production of the majority of its products. Any issues that cause
disruption at these production facilities could have a material adverse effect
on their businesses.
Risk mitigation - The Group reviews the risks that may cause a disruption in
supply and has developed disaster recovery plans to help cope with unexpected
events.
With manufacturing of power converters in the Vietnam facility now possible,
each manufacturing facility can now act as a backup in the event of a disaster.
Dependence on key 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 any of their respective
executive officers or other key employees could have a material adverse effect
on their businesses.
Risk mitigation - The Group undertakes performance evaluations and reviews to
help it stay close to its key personnel. Where considered appropriate the Group
also makes use of financial retention tools such as equity awards.
Loss of key customers/suppliers
The Group is dependent on retaining its key customers and suppliers. Should the
Group lose a number of its key customers or a key supplier this could have a
material impact on the Group's businesses financial condition and results of
operations. However, for the year ended 31 December 2014, no one customer
accounted for more than 6% of revenue.
Risk mitigation - The Group mitigates this risk by providing excellent service.
Customer complaints and non-conformances are reviewed monthly by members of the
executive management team. On the supply side we conduct regular audits of our
key suppliers and in addition keep large amounts of safety inventory of key
components.
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.
Risk mitigation - The Group mitigates this risk by keeping large safety
inventories of key components.
Fluctuations of revenues, expenses and operating results
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, 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.
Risk mitigation - The Group's profitable and robust business model helps
mitigate risks from the factors set out above.
Management stretch
The management team is likely to be faced with increased challenges associated
with any sustained adverse macroeconomic conditions. With the financial markets
uncertain, the management team must also be able to adapt to the changing
conditions and implement corrective measures as they are needed. It could
adversely affect the Group if the management team is not able to successfully
cope with these challenges.
Risk mitigation - Performance against key goals and resourcing of these is
reviewed at the executive management team meetings.
Information Technology Systems
The business of the Group relies to a significant extent on information
technology systems used in the daily operations of its operating subsidiaries.
Any failure or impairment of those systems or any inability to transfer data
onto any new systems introduced could cause a loss of business and/or damage to
the reputation of the Group together with significant remedial costs.
Risk mitigation - The Group has disaster recovery plans in place to help deal
with disruption including information technology issues. The GRecent news on XP Power
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