REG-XP Power Ltd: Annual Financial Report <Origin Href="QuoteRef">XPP.L</Origin> - Part 2

XP PowerAnnouncement

22/02/2016 07:10

- Part 2: For the preceding part double click  ID:nPRrM2BEFa 

First quarter dividend paid      13.0    ^    2.4     12.0    *     2.2   
                                                                          
Second quarter dividend          14.0    ^    2.7     13.0    *     2.5   
paid                                                                      
                                                                          
Total                            63.0         12.0    57.0         10.8   

* Dividends in respect of 2014 (61.0p)

^ Dividends in respect of 2015 (66.0p)

The third quarter dividend of 15.0 pence per share was paid on 14 January 2016.
The proposed final dividend of 24.0 pence per share for the year ended 31
December 2015 is subject to approval by shareholders at the Annual General
Meeting scheduled for 1 April 2016 and has not been included as a liability in
these financial statements.  It is proposed that the final dividend be paid on
4 April 2016 to members on the register as at 11 March 2016.

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:

                                                             2015      2014
                                                                           
                                                                £         £
                                                         Millions  Millions
                                                                           
Earnings                                                                   
                                                                           
Earnings for the purposes of basic and diluted earnings                    
per share                                                                  
                                                                           
(profit for the year attributable to equity                  19.7      19.4
shareholders of the parent)                                                
                                                                           
Earnings for earnings per share                              19.7      19.4
                                                                           
Number of shares                                                           
                                                                           
                                                           18,997    18,998
Weighted average number of shares for the purposes                         
of basic earnings per share (thousands)                                    
                                                                           
Effect of potentially dilutive share                          175       196
options (thousands)                                                        
                                                                           
Weighted average number of shares for the                                  
purposes of                                                                
                                                                           
dilutive earnings per share                                19,172    19,194
(thousands)                                                                
                                                                           
Earnings per share from operations                                         
                                                                           
Basic                                                      103.7p    102.1p
                                                                           
Diluted                                                    102.8p    101.1p
                                                                           
Diluted adjusted                                           104.3p    101.1p

6.       Borrowings

The borrowings are repayable as follows:

£ Millions                                                    2015     2014
                                                                           
On demand or within one year                                   4.0      2.5
                                                                           
In the second year                                             4.6        -
                                                                           
 Total                                                         8.6      2.5

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 2015, the Group had an overdraft of
£0.6 million (2014: £2.5 million). In September 2015, the Group renewed its
annual working capital facility to US$12.5 million (2014: US$15.0 million).
This facility steps down to US$10.0 million from 1 January 2016, then reduces
to US$7.5 million from 1 April 2016 and to US$5.0 million from 1 July 2016. The
facility is priced at the Bank of Scotland (BOS) base rate plus a margin of
1.5%. 

2.    The Group has entered into a new term loan facility of US$12.0 million (£
8.0 million) with BOS on 20 November 2015. The facility is repayable in equal
quarterly instalments of US$1.7 million commencing in June 2016 and ending in
December 2017. The term loan is priced at LIBOR plus a margin of 0.95% (2014:
priced at LIBOR plus a margin of 1.75%).

3.   The Group has pledged all assets as collateral to secure banking
facilities granted to the Group by BOS.

4.   Management assessed all loan covenants have been complied with as of 31
December 2015.

7.       Deferred consideration

The Group owns 84.0% (2014: 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.

8.       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.

Exposure to exchange rate fluctuations

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 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
program size, 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.

Disruption of 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 68% 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.

Risk mitigation - We now have two facilities (China and Vietnam) where we are
able to produce power supplies. However, currently only certain series can be
produced in both facilities.

We have disaster recovery plans in place for both facilities.

We have also undertaken a risk review to the manufacturing management to
identify and assess risks which could cause a serious disruption to
manufacturing and then identified and implemented actions to reduce or mitigate
these risks where possible.

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 2015, no one customer
accounted for more than 7% 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.

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

Risk mitigation - We perform 100% functional testing on all own manufactured
products and 100% hipot testing, that determines the adequacy of electrical
insulation, on own manufactured products. This ensures the integrity of the
isolation barrier between the mains supply and the end user of the equipment.
We also test all the medical products we manufacture to ensure the leakage
current is within the medical specifications.

Where we have contracts with customers we always limit our contractual
liability regarding recall costs

Fluctuations of revenues, expenses and operating results due an economic
downturn or external 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, 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 - Although not immune from an economic downturn or the
cyclicality of the capital equipment markets, the Group's diverse customer
base, geographic spread and revenue annuities reduces exposure to this risk.

The Group's business model is not capital intensive and the strong profit
margins lead to healthy cash generation which also helps mitigate risks from
these external factors.

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. The Group
is also potentially exposed to cyber-attacks of its internal systems or website
or software viruses in general which could have an adverse impact on the
business

Risk mitigation - The Group has disaster recovery plans in place to help deal
with disruption including information technology issues.

The Group's key data is replicated on different sites and backed up or is held
in the cloud. The Group has firewall and other data security infrastructure to
protect from outside threats. It also operates policies to prevent employees
using unauthorised software inside the Company's premises which could introduce
a virus or malware into the Group's internal systems.

Risks relating to regulation 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.

Risk mitigation - The Group hires employees with relevant skills and uses
external advisors to keep up to date with changes in regulations and to remain
compliant.

The Group also employs a treasurer who keeps our taxation position under
continual review.

9.       Responsibility Statement

The Directors' confirm to the best of their knowledge and belief that this
condensed set of financial statements:

- gives a fair view of the assets, liabilities, financial position and profit
of the Group; and

- includes a fair review of the information required by the Disclosure and
Transparency Rules.

10.     Other information

XP Power Limited (the "Company") is listed on the London Stock Exchange and
incorporated and domiciled in Singapore. The address of its registered office
is 401 Commonwealth Drive, Lobby B, #02-02, Haw Par Technocentre, Singapore
149598.

The financial information set out in this announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2014 or 2015. The
financial information for the year ended 31 December 2014 is derived from the
XP Power Limited statutory accounts for the year ended 31 December 2014, which
have been delivered to the Accounting and Corporate Regulatory Authority in
Singapore. The auditors reported on those accounts; their report was
unqualified. The statutory accounts for the year ended 31 December 2015 will be
finalised on the basis of the financial information presented by the directors
in this preliminary announcement and will be delivered to the Accounting and
Corporate Regulatory Authority in Singapore following the Company's Annual
General Meeting.

Whilst the financial information included in this preliminary announcement has
been computed in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union, this announcement does not itself
contain sufficient information to comply with IFRSs as adopted by the European
Union. The Company expects to publish full financial statements that comply
with IFRSs as adopted by the European Union later this month.

This announcement was approved by the directors on 22 February 2016.



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