REG-XP Power Ltd: Annual Financial Report
05/03/2024 07:15
5 March 2024
XP Power Limited
(‘XP Power’ or ‘the Group’ or ‘the Company’)
2023 Full Year Results
Strategic progress in a challenging year
XP Power, one of the world's leading developers and manufacturers of critical
power control solutions for the Industrial Technology, Healthcare and
Semiconductor Manufacturing Equipment sectors, announces its annual results
for the year ended 31 December 2023 (“2023” or “the year”).
Year ended 31 December (£ millions unless otherwise stated) 2023 2022 % change
At actual exchange rates In constant currency
Order intake 208.8 362.9 (42)% (43)%
Revenue 316.4 290.4 9% 9%
Book-to-bill 0.66x 1.25x (0.59)x
Order book 192.0 308.4 (38)%
Adjusted results 1 :
Operating profit 38.1 42.9 (11)% (3)%
Profit before tax 26.6 38.0 (30)%
Diluted earnings per share (pence) 81.8p 160.1p (49)%
Reported results:
Gross margin 41.5% 41.5% -
Operating profit/(loss) 24.5 (24.1) 202%
Profit/(loss) before tax 11.2 (30.2) 137%
Diluted loss per share (pence) (45.3)p (101.6)p 55%
Cash generated from operations 62.4 2.1 2,871%
Net debt 112.7 151.0 (25)%
Net debt : Adjusted EBITDA 2.0x 2.7x (0.7)x
1 Details of the adjustments made and reconciliations to the reported results
can be found in note 2 of the consolidated financial statements.
Financial Highlights
* Slower order intake due to: * Normalisation of order patterns after two
years of unprecedented activity during COVID-19 and associated period of
supply chain disruption
* Cyclical slowdown in the semiconductor industry after two years of strong
growth
* Shorter delivery lead times, which have allowed customers to place orders
later
* Revenue growth of 9% due to: * Strong growth in Industrial Technology and
Healthcare
* Industry-wide cyclical slowdown in Semiconductor Manufacturing Equipment
from the second half
* All sectors benefiting from delivery of backlog
* Gross Margin maintained at 41.5% and protected from residual inflationary
impacts with effective price pass through
* Adjusted Operating Profit of £38.1 million: * £4.0 million of amortisation
and impairment charges booked following review of capitalised product
development costs
* Underlying result excluding these charges was in line with management’s
expectations
* Net debt 25% lower than prior year at £112.7 million: * Debt reduction from
equity raise
* Record operating cash generation, particularly strong in H2
* Previously announced management actions delivering expected benefits
* Net debt : Adjusted EBITDA reduced by 0.7x to 2.0x at year-end
Operational Highlights
* Product development: 11 new products launched and strategic areas, such high
voltage/power categories, growing ahead of the Group average
* Customer development: Improvement in project sampling activity during the
year and record new business wins
* Supply chain performance: significant increase in manufacturing output,
reduction in delivery lead times, and lower inventory
* Sustainability: Net Zero Transition Plan launched, targets approved by the
SBTi, significant reduction in emissions
* FuG, acquired in 2022, performing well with further growth potential
* Comprehensive programme of cost reduction actions commenced in Q4 2023
remains on track
Outlook
* As already announced, a slowdown in order intake will affect revenue in 2024
as our order book normalises, backlog is cleared and customers run down buffer
stocks, particularly within the Healthcare and Industrial Technology sectors
* Cost reductions being implemented in response in Q1 2024, in addition to
those taken in Q4 2023
* Expect performance in 2024 to be second half weighted, with an improvement
in trading as the year progresses
* Group remains confident in medium-term prospects, underpinned by our strong
market position and broad product portfolio
Gavin Griggs, Chief Executive Officer, commented:
“2023 was a challenging year for the Group. An industry-wide slowdown in the
Semiconductor Manufacturing Equipment market, combined with greater than
expected spending on major capex projects, led to elevated borrowing levels in
the second half of the year. We responded by implementing a plan of
operational and funding actions to reduce debt levels in the fourth quarter.
This was a difficult period for the Group, but the actions taken were
appropriate to the circumstances, in the long-term interests of shareholders,
and had lowered our borrowings by year-end.
Whilst the end to the year was disappointing, our leading positions in
attractive markets and an improved supply chain performance enabled our order
backlog to be delivered, achieving revenue growth for the year as a whole. We
also made good progress strategically in areas that will sustain our
longer-term progress.
We expect activity levels to reduce in 2024 after our record revenue
performance in 2023 and have recently taken further actions to lower our cost
base accordingly. The reduction in revenue is largely attributable to a
normalising order book, with backlogs now largely cleared, the tail end of the
semiconductor downcycle and destocking by Healthcare and Industrial Technology
customers as they respond to greater resilience in the global supply chain.
We expect trading to improve as 2024 progresses, creating a second half
weighting to performance as channel stock levels reach equilibrium and demand
returns to the Semiconductor Manufacturing Equipment market, though it is
difficult to be precise about the timing of the improvement. We will continue
to take decisive action to manage our costs and maximise cash generation
during this slower trading period, prioritising debt reduction, whilst
preserving our sources of long-term competitive advantage. We are confident
that our market positions remain strong and that the Group remains well
positioned to prosper as our key markets resume their trajectory of healthy
long-term growth.”
Enquiries:
XP Power
Gavin Griggs, Chief Executive Officer +44 (0)118 976 5155
Matt Webb, Chief Financial Officer +44 (0)118 976 5155
Citigate Dewe Rogerson
Kevin Smith/Lucy Gibbs +44 (0)20 7638 9571
XP Power designs and manufactures power controllers, the essential hardware
component in every piece of electrical equipment that converts power from the
electricity grid into the right form for equipment to function. Power
controllers are critical for optimal delivery in challenging environments but
are a small part of the overall customer product cost.
XP Power typically designs power control solutions into the end products of
major blue-chip OEMs, with a focus on the Semiconductor Manufacturing
Equipment (circa 32% of sales),Industrial Technology (circa 43% of sales) and
Healthcare (circa 25% sales) and sectors. Once designed into a programme, XP
Power has a revenue annuity over the life cycle of the customer’s product
which is typically five to seven years depending on the industry sector.
XP Power has invested in research and development and its own manufacturing
facilities in China, North America, and Vietnam, to develop a range of
tailored products based on its own intellectual property that provide its
customers with significantly improved functionality and efficiency.
Headquartered in Singapore and listed on the Main Market of the London Stock
Exchange since 2000, XP Power is a constituent of the FTSE SmallCap Index. XP
Power serves a global blue-chip customer base from over 30 locations in
Europe, North America, and Asia.
For further information, please visit www.xppowerplc.com
Chair’s Statement
Strategic progress in a challenging year
2023 was a year in which the Group faced unexpected challenges but delivered
some encouraging progress in key strategic areas.
The Group entered 2023 with elevated borrowing due to various one-off factors,
including payment of damages in respect of the Comet legal case and investment
in inventory to maintain customer service levels during the period of
exceptional supply chain disruption in 2022. Strong cash generation has been a
hallmark of the Group’s historic performance and the Board expected
borrowings to reduce during the year. However, an industry-wide slowdown in
the Semiconductor Manufacturing Equipment market, combined with the Group’s
extra spending on key capex projects, made this challenging. In October the
Board acted to safeguard the Group’s balance sheet position by implementing
a funding plan, which included cost and capex reductions, suspension of the
dividend, an issuance of new shares and the renegotiation of our banking
facilities. Suspension of the dividend was not a decision the Board took
lightly, but it was appropriate in the circumstances. In combination, this
materially reduced our borrowing and leverage by year-end. The Board’s
priority is to further reduce net debt leverage into the Group’s previously
stated range of 1-2x Adjusted EBITDA and then in the longer-term operate in
the 0-1x range.
The disappointing end to the year masked some more encouraging signs. Growth
for the year as a whole was healthy. We saw double-digit growth within the
Healthcare and Industrial Technology sectors, aided by an improved supply
chain performance which allowed backlog to be delivered. Demand from the
Semiconductor Manufacturing Equipment sector moderated as the year progressed,
after two very strong years, albeit with some sub-sectors showing continued
strength.
We continue to enjoy leading positions in attractive markets with structural
growth characteristics. They have underpinned our historic revenue growth,
which has averaged 12% per annum over the last 10 years, and I am confident
they will continue to do so for the longer-term.
We successfully protected our gross margins from input cost inflation which
continued to work its way through our supply chain in 2023. Our ability to
pass through inflation underlines the strength of our brands and our market
position.
Our growth in 2023 was weighted toward higher power and more technologically
sophisticated products, which, in line with our strategy, are becoming an
increasingly important part of our portfolio. We deepened our relationships
with key customers by cross-selling them a wider range of products and have a
growing pipeline of new products and customer projects to drive long-term
growth. We also delivered a record level of new business wins which will
support our growth in the medium-term. Our supply chain performance improved
notably, with both delivery lead times and inventory levels reducing
materially. We made solid progress with the transfer of production from
facilities in the West to Asia, with more to come in 2024. While we were
forced to re-locate two key sites within the USA in early 2024, both moves are
now complete and will help to support our long-term growth. The Group extended
its customer reach in Europe by entering into a continent-wide agreement with
a leading distributor. We also delivered against our recently launched
Sustainability Strategy and invested in our people.
Whilst the second half of the year was challenging, I remain focused on, and
excited by, our long-term growth opportunities, which I believe we are well
positioned to seize.
Our Board
I was honoured to succeed James Peters as Chair in April 2023. I would like to
take this opportunity to thank James for an immeasurable contribution to the
Group over his 35 years of service and as founder.
After a detailed search process as set out in the Nomination Committee Report,
Matt Webb was appointed as the Group’s Chief Financial Officer in September
2023. Whilst still relatively new to his role, Matt has contributed
significantly, and I have no doubt will continue to do so. I would like to
thank David Stibbs for fulfilling the CFO role on an interim basis whilst the
search process was completed, and I am delighted he remains with us.
Our People and Our Values
The success of any organisation is dependent on its culture and the people and
talent within it. The Board engages regularly with the Executive Leadership
Team and colleagues throughout the Group to ensure we are continuing to
identify and develop our key people and bring new talent and capabilities into
the business to help underpin our growth ambitions.
As previously announced, the Group restructured its cost base in the second
half of the year in response to weakening demand. Restructuring actions were
taken promptly to safeguard the future progress of the Group, whilst dealing
compassionately and openly with those impacted. I would like to thank our
employees for all their hard work throughout the year, but particularly for
their support and forbearance whilst the restructuring plan was implemented.
As I travel across the Group, I am continually impressed by the skill,
experience and enthusiasm of members of the XP team, which only increases my
confidence in our long-term prospects and potential.
Jamie Pike
Chair
Chief Executive Officer’s Review
Review of our year
The Group delivered revenue of £316.4 million in 2023, 9% higher than prior
year in constant currency. Over the last 10 years, revenue growth has been
consistently strong, averaging 12% per annum, as we have amassed a growing
share of attractive markets with healthy, long-term growth attributes.
Revenue growth was strongest in the first half of 2023, at 24% in constant
currency, as an improved supply chain performance allowed us to deliver our
order backlog. Revenue grew significantly in all three of our market sectors
in this period: Semiconductor Manufacturing Equipment, Industrial Technology
and Healthcare.
The pace of progress moderated as the year progressed. Second half revenue was
2% lower than prior year in constant currency as we faced tougher comparatives
and began to experience the impact of the industry-wide slowdown in demand
from the semiconductor equipment market after three strong years. Slower
market conditions prompted some semiconductor customers to cancel or defer
deliveries at the start of the second half, but delivery schedules have
remained firm since. Sales to Industrial Technology and Healthcare customers
continued to grow, albeit at a reduced pace.
We started 2023 with an elevated order book of £308.4 million, reflecting
both strong demand and a supply chain limited by component shortages in
previous years. Our order intake reduced to £208.8 million in 2023 (2022:
£362.9 million) following two years of unprecedented activity levels in the
aftermath of COVID-19, representing a book-to-bill of 0.66x. This reflected
the slowdown in the Semiconductor Manufacturing Equipment market and growing
confidence in supply chain performance, allowing customers to place orders
later, remove buffer inventory and reduce safety stocks of our products.
However, the slowdown in order intake had very little impact on our 2023
revenue, which continued to be supported by the delivery of the backlog
brought into the year. It is encouraging to see that our design wins continued
and we achieved a record level, 7% ahead of the previous record year. This
combined with continued strong sampling rates supports our medium-term
outlook.
The slowdown in sales in the second half of the year, combined with unexpected
additional investment in the relocation of two key US sites, initially left
our net debt materially above our target leverage range of 1-2x Adjusted
EBITDA with insufficient borrowing headroom versus our banking covenants. We
responded by implementing a comprehensive funding plan in October 2023,
described in more detail in the Chief Financial Officer’s Review. I believe
the plan was appropriate to the circumstances and in the Company’s best
long-term interests. The plan had materially lowered our borrowing and
leverage by year-end and we are continuing to prioritise debt reduction in
2024. We should have been better prepared to withstand the trading challenges
we have faced and I am therefore focused on taking the steps necessary to
navigate this challenging period and build greater operational resilience. In
the longer-term, we aim to reduce our leverage range to 0-1x Adjusted EBITDA.
The reduction in borrowing and leverage delivered in the second half was
supported by strong operating cash generation, with operating cash conversion
of 218% in H2 and 173% for the year as a whole. The strong progress towards
the end of the year was aided by inventory reduction, which was particularly
pleasing to see given it is an important element of our debt reduction plan.
Sales toward the end of 2023 were slightly above our expectations, due largely
to our decision to reschedule the relocation of our facility in California
from December 2023 to January 2024, which had the effect of bringing forward
some deliveries into late 2023.
Following a thorough review, we identified some capitalised product
development costs that needed to be amortised or impaired, adding a non-cash
charge of £4.0 million to costs. These costs are discussed in more detail in
the Chief Financial Officer’s Review. This left full year Adjusted operating
profit at £38.1 million. These costs had no impact on cash or borrowing
leverage ratios.
Revenue by market
Group revenue grew by 9.0% to £316.4 million, including constant currency
growth of 9.3%, and (0.3)% from currency movements.
The breakdown of revenue growth by sector was as follows:
% of Group revenue Revenue growth / (decline) %
Semiconductor Manufacturing Equipment 32% (9.7%)
Industrial Technology 43% 13.8%
Healthcare 25% 37.2%
Total – In constant currency 100% 9.3%
Currency movements (0.3%)
Total 9.0%
Semiconductor Manufacturing Equipment
Sales to the Semiconductor Manufacturing Equipment sector grew by 5% in
constant currency in the first half of the year as we delivered a backlog of
orders built up in the preceding two years. Sales declined by 22% year-on-year
in the second half against a tough comparative, reflecting the cyclical
slowdown in semiconductor investment spending, leaving revenue 9.7% lower for
the full year. Our performance was helped by our over-weight positions in more
resilient sub-sectors such as deposition, etch and trailing edge chip
manufacture which were less impacted by the slowdown. Order intake in the year
totalled £59.4 million and book-to-bill was 0.58x.
Whilst the overall market softened, there were pockets of continued strength.
We increased production of our high voltage high power range by nearly 50% to
meet high demand, with a further increase planned for 2024.
The US and Chinese governments tightened controls over the export of
semiconductor manufacturing equipment in the year. Whilst very few of our
sales are directly impacted by these controls, their introduction did disrupt
the production of one of our key customers in China, with sales slowing whilst
the necessary permits were sought. The ongoing uncertainty is an issue the
Group will seek to navigate but it will limit expansion in China for some of
our product portfolio.
The prospects for this sector are very attractive and we continue to expect
long-term market growth averaging 10% per annum, underpinned by the
manufacturing expansion required to keep pace with future demand for
technologies such as AI, IoT and electrified transportation. Given our
customer exposure, we expect to grow ahead of the market. Whilst sales into
this sector are likely to remain subdued in the first half of 2024, we
continue to expect to see an improvement in order intake in the second half
and a stronger performance in 2025.
Industrial Technology
Sales to the Industrial Technology sector grew by 26% in constant currency in
the first half of the year and 4% in the second half.
Increased manufacturing output allowed us to clear order backlog and restock
the sales channel, supporting revenue throughout the year. Order intake in the
year was £92.4 million and the book-to-bill was 0.68x following a slowdown in
intake during the second half.
During the year, we signed a sales agreement with a leading, pan-European
“design in” distributor, simplifying our European distribution
arrangements and increasing our ability to bid on small to medium-sized
customer projects, to allow our own sales team to focus on larger accounts.
With the new structure in place, we now have the right platform for long-term
growth, particularly within the Industrial Technology sector.
Healthcare
The Healthcare sector saw a reset in 2022 after two preceding years of strong
demand for products used in the treatment of critical illnesses particularly
COVID-19 during the pandemic. We were therefore pleased to see activity levels
recover strongly in 2023, with a more normal mix of end uses. This resulted in
revenue growth of 37% for the year in constant currency, the highest of any
sector. Activity remained strong throughout the year.
Progress was strongest in North America as we switched more of our
manufacturing capacity toward the fulfilment of orders from the Healthcare
sector as the semiconductor equipment market cooled. Order intake for the year
was £57.0 million and the book-to-bill was 0.73x. Order intake slowed toward
the end of the year, with customers reporting excess inventories in early
2024. As global supply chains have normalised for the first time post-COVID,
customers are now focused on reducing their inventory levels.
Regional Performance
Sales to North America totalled £184.5 million, up 11% in constant currency.
The region saw strong growth within the Healthcare sector, with sales to
customers in the semiconductor market slowing after two strong years,
particularly within low voltage product categories.
Sales to Europe totalled £97.8 million, up 13% in constant currency, with all
three market sectors growing. This included record sales from FuG, a business
acquired by the Group in 2022. As highlighted at the time of acquisition, we
are supporting the future progress of this business by using our sales team to
increase its global reach.
Sales to Asia totalled £34.1 million, down 6% in constant currency due
largely to reduced demand from the Asian Semiconductor Manufacturing Equipment
market. This was largely attributable to permitting issues experienced by one
Chinese customer, which we hope will be resolved in due course.
Delivery of our strategy in the year
Our vision is to be the first-choice power solutions provider and deliver the
ultimate experience for our customers and our people. Over time we have
expanded our product portfolio up the power and voltage scale to provide our
customers with a broader offering to meet their power needs. We have added
high voltage and radio frequency (“RF”) technology and increased our
engineering resource to provide enhanced engineering services capabilities and
deliver a complete power solution to our key customers. We are now one of few
providers who can offer customers a complete spectrum of power and voltage
capabilities and package several power converters into an overall solution
customised to the customer’s specific application. This makes us an
attractive partner to our key customers and is a key driver of our market
share gains.
Our strategy is summarised as follows:
* Product development: Continually develop our market leading range of
competitive products, both organically and through selective acquisitions;
* Customer development: Target customer accounts where we can add value and
increase our penetration of those target customers;
* Supply chain development: Continually improve our global, end-to-end, supply
chain, balancing high efficiency with market leading customer responsiveness;
and
* Sustainability: Lead our industry on environmental responsibility
We made progress with our strategic priorities during the year and remain
well-positioned to benefit as demand improves. Our progress in the year is
summarised below.
Product development
Product development is a key source of our competitive advantage. The XP brand
is synonymous with high quality, high functioning and reliable power
solutions. It is important that we continually invest to ensure we are
offering a broad, up-to-date range of power supplies that meet our
customers’ demanding performance requirements. We work closely with them to
ensure our power supply is “designed in” at an early stage of their own
product development cycle, with high re-engineering and re-certification costs
providing a natural barrier to competition thereafter. The “designed in”
nature of the sale results in an annuity revenue stream throughout our
customer’s product life cycle, which is typically 5-7 years but can be much
longer.
Our product development capabilities include Engineering Services teams, most
notably in North America and Asia. Located close to the customer, these teams
enable the rapid deployment of customised power solutions for individual
customers to speed up their own product development process. This a high
margin, high growth proposition.
A key aspect of our product strategy over recent years has been to expand into
higher power and higher voltage supply categories through selective bolt-on
acquisitions, to complement our heritage in lower power areas. The most recent
example is the acquisition of FuG, which performed well during 2023.
Our progress in the year can be summarised as follows:
* We launched 11 new products. These included a programmable 3kW power supply
series which brings high power with digital control to demanding medical and
industrial applications.
* Our Engineering Services group delivered 39 new customised products to
customers. Our Engineering Services team in the USA was relocated to a larger,
state of the art facility to support future growth.
* Sales of high voltage, high power and RF products grew by 19%, faster than
the Group average.
* FuG and Guth delivered record revenue, 6.4% higher than 2022 after adjusting
for our period of ownership.
* The pipeline for new products is strong and we expect to bring new platform
products to market across our portfolio in the next 12-18 months.
Whilst reductions were made during the year in certain overhead functions, as
discussed in detail in the Chief Financial Officer’s Review, we were careful
to maintain our investment in product development to support future growth.
Customer development
We work with leading OEMs in each of the three market sectors we serve.
Relationships are deep and enduring and our customers recognise us for our
superior quality, reliability, responsiveness and flexibility. Our sales teams
are tasked with identifying new customers who would benefit from our unique
business model and maximising our share of each customers’ product power
needs.
Our progress on customer development in the year can be summarised as follows:
* The value of new projects won grew by 7% year-on-year to a record level,
which will translate into growth over the medium term as these products enter
production.
* Sampling, a key stage in the new design win process, remains strong for the
third year in a row following a dip during the pandemic. Customers resumed new
product development work after a period in which their engineering efforts
were focused on redesigning existing products to combat component shortages.
* We invested in digital marketing by re-platforming our website and improving
our presence in online search.
* As referred to above, we signed a new European distribution agreement.
Supply chain development
After two challenging years, our supply chain performance improved
considerably in 2023, in terms of service, resilience and efficiency.
Our order book reduced by £116.4 million in the year to £192.0 million.
While our order backlog reduced considerably during 2023 it remains above
pre-COVID levels. We expect our order book to return to historic norms by the
end of the first half of 2024.
Delivery lead times reduced considerably during the year, improving customer
service. Shorter manufacturing lead times reduced the need for air freight,
reducing costs and minimising environmental impact.
We added resilience to our supply chain by increasing production flexibility.
71% of the products we manufacture in Asia can now be made in either our China
or Vietnam factories. We now have multiple sourcing options for more of our
critical components and more of our components can be sourced on a returnable
basis should demand change unexpectedly.
We improved efficiency in terms of capital intensity. It was pleasing to see
inventory reduce by £22.8 million to £91.6 million in the year, with
progress weighted towards the fourth quarter. We also saw a reduction in both
raw materials and work in progress, as expected. Reductions in finished goods
should follow as the benefits flow through our supply chain, subject of course
to demand. The progress we have made in this area was aided by recent
investments in our Enterprise Resource Planning system, which provides
end-to-end visibility of demand to enable us to plan our supply requirements
more efficiently. We have also renegotiated better supplier terms where
appropriate, in terms of both pricing and payment, preserving cash.
Slower demand allowed us to defer construction of our new facility in Malaysia
by one year, preserving cash, with commissioning now expected by the end of
2025. We expect our existing manufacturing sites to have sufficient capacity
to meet demand in the meantime.
Higher raw material prices gradually worked their way into our finished goods
inventory, increasing our cost of goods sold. We successfully passed this
inflation through, protecting margins, with roughly half of our revenue
increase attributable to price. We have seen lower component prices in the
last six months, which should support margins going forward.
We are monitoring events in the Red Sea closely. The impact on freight costs
has been very modest so far, given that this route is less important to the
Group than deliveries across the Pacific. We have sufficient finished goods
inventory to accommodate longer transit times if deliveries route via southern
Africa and a proven ability to re-price quickly should freight costs increase
sustainably.
Sustainability
Sustainability is a key part of our strategy and has been since 2009, when the
Group first formed its Sustainability Council. We realised early how important
this would be over time to our customers, investors and people.
We set out and publish our priorities in our annual Sustainability Report. We
delivered as follows against these priorities in 2023:
* We published our Net Zero Transition Plan.
* Our emission reduction targets were recently approved by the Science Based
Targets Initiative (“SBTi”).
* We significantly reduced our Scope 2 Greenhouse Gas emissions in the year by
acquiring rights to locally sourced renewable electricity.
* We introduced 10 XP Green Power product families in 2023. XP Green Power
products generated revenues of £67.1 million in 2023, 13% higher than last
year. The estimated lifetime savings from the XP Green Power products shipped
in 2023 is 140,300 tonnes of CO2.
Our progress has not gone unrecognised. In 2022 we were delighted to receive
the first ESG award from Lam Research, a leading global supplier of
semiconductor manufacturing equipment and one of our largest customers,
recognising us for our commitment to strong ESG goals and proactively aligning
with Lam on these priorities. This follows the PRISM award we received from
ASM in 2021 for sustainability.
We continue to support our employees through training and development,
promoting a fair working environment with equal opportunities, and see mental
health as a priority. Through workforce engagement, views are heard at Board
level.
Litigation Update
As previously reported, in March 2022, an award for damages was made against
XP for a total of $40 million in respect of a US legal action brought by Comet
Technologies USA Inc., Comet AG, and YXLON International (“Comet”).
Our appeal against the original ruling, which we believe to be well founded,
was filed with the Appellate Court in August 2023 and we have been responding
in line with the Appellate Court’s timeline. We expect the appeal to be
heard during 2024.
Judgement has yet to be received in respect of Comet’s claim for legal fees
and interest associated with the case. It is expected soon.
We incurred legal fees of £2.1 million in 2023 and these are reported as an
Adjusting item per note 2 to the consolidated financial statements.
While we believe we have provided for the worst-case situation, with the
pending judgements and future appeals there remain a broad range of potential
outcomes. Further updates will be provided as and when the current position
changes.
Outlook
We expect activity levels to reduce in 2024 after our record revenue
performance in 2023 and have recently taken further actions to lower our cost
base accordingly. The reduction in revenue is largely attributable to a
normalising order book, with backlogs now largely cleared, the tail end of the
semiconductor downcycle and destocking by Healthcare and Industrial Technology
customers as they respond to greater resilience in the global supply chain.
We expect trading to improve as 2024 progresses, creating a second half
weighting to performance as channel stock levels reach equilibrium and demand
returns to the Semiconductor Manufacturing Equipment market, though it is
difficult to be precise about the timing of the improvement. We will continue
to take decisive action to manage our costs and maximise cash generation
during this slower trading period, prioritising debt reduction, whilst
preserving our sources of long-term competitive advantage. We are confident
that our market positions remain strong and that the Group remains well
positioned to prosper as our key markets resume their trajectory of healthy
long-term growth.
Gavin Griggs
Chief Executive Officer
Chief Financial Officer’s Review
Statutory Results
The statutory operating profit was £24.5 million, compared with a loss of
£24.1 million in the prior year, with the 2022 loss primarily driven by the
damages and legal costs from the Comet case.
Net finance expense was £13.3 million (2022: £6.1 million), resulting in a
profit before tax of £11.2 million (2022: loss of £30.2 million). The higher
net finance expense reflects the higher average debt and increased interest
rates. This resulted in an income tax charge of £20.2 million compared to a
£10.6 million credit in 2022. The basic loss per share was 45.4 pence whereas
in 2022 the Group had a loss per share of 102.0 pence.
Adjusted Results
As in prior years, Adjusted and other alternative performance measures are
used in this announcement to describe the Group’s results. These are not
recognised under International Financial Reporting Standards (IFRS) or other
generally accepted accounting principles (GAAP).
Adjustments are items included within our statutory results that are deemed by
the Board to be unusual by virtue of their size or incidence. Our Adjusted
measures are calculated by removing such Adjustments from our statutory
results. The Board believes Adjusted measures help the reader to understand XP
Power’s underlying results and are used by the Board and management team to
interpret Group performance. Note 2 to the consolidated financial statements
includes reconciliations of statutory metrics to their Adjusted equivalent and
provides a breakdown of the Adjustments made.
Revenue
Revenue grew by 9.0% to £316.4 million (2022: £290.4 million).
Growth consisted of constant currency growth of 9.3% and an adverse currency
movement of 0.3%.
The year started strongly, with constant currency growth of 24% in the first
half thanks to an improved supply chain performance which allowed us to reduce
our order backlog and restock the sales channel. It moderated as the year
progressed, with second half revenue 2% lower than prior year in constant
currency, as we reached robust comparatives and as sales into the
Semiconductor Manufacturing Equipment market inevitably cooled after two years
of strong demand. Sales into Industrial Technology and Healthcare sectors grew
throughout the year.
The Group’s revenue by region and by sector for 2023 is set out in the table
below:
2023 £ million % c hange in constant currency
North America
Semiconductor Manufacturing Equipment 86.0 (8.2%)
Industrial Technology 54.0 20.8%
Healthcare 44.5 56.6%
Total 184.5 10.7%
Europe
Semiconductor Manufacturing Equipment 3.4 25.9%
Industrial Technology 67.6 10.3%
Healthcare 26.8 19.1%
Total 97.8 13.1%
Asia
Semiconductor Manufacturing Equipment 12.8 (23.7%)
Industrial Technology 14.7 7.0%
Healthcare 6.6 12.2%
Total 34.1 (6.2%)
North America and Asia were both impacted by the slowdown in Semiconductor
Manufacturing Equipment demand. The impact in Asia was greater as a key
customer experienced manufacturing delays whilst it adapted to industry-wide
export controls. The impact in North America was largely confined to low
voltage categories, with sales of high voltage and RF products continuing to
grow, which is encouraging given their strategic importance.
North America was able to more than offset the impact of the semiconductor
downcycle with very strong growth in Industrial Technology and Healthcare
sales, to deliver double-digit revenue growth overall. This included some
deliveries brought forward into 2023 from January 2024 to maintain continuity
of service whilst we relocated our California facility at the end of its
lease.
Europe delivered strong growth in each market sector, particularly in the
Industrial Technology sector aided by healthy sales into our distributors as
they restocked their networks.
Order intake
Order intake was £208.8 million, 43% lower than last year in constant
currency. Book-to-bill in 2023 was 0.66x.
Order intake by quarter 2023 £ million Q1 Q2 Q3 Q4 Full Year
Order intake 61.2 54.4 44.2 49.0 208.8
Order intake within the Semiconductor Manufacturing Equipment sector was
relatively slow throughout the year and was the largest contributor to the
Group’s overall year-on-year reduction. Order intake within this sector
increased in the fourth quarter due to large orders for high voltage high
power products on longer lead times, for which demand remains strong.
Order intake within the Healthcare and Industrial Technology sectors started
2023 strongly but moderated later in the year. We initially attributed this
moderation to shorter delivery lead times, which were allowing customers to
raise orders later, slowing their rate of order placement. We expected order
intake to improve in early 2024 as delivery lead times reached a minimum. This
has not been seen to date because customers are also placing fewer orders to
reduce their overall inventory of our products, which will hold back our
activity levels temporarily in 2024 whilst the extra inventory is utilised.
Order book
Our order book reduced by £116.4 million in the year to £192.0 million at 31
December 2023 as backlog was shipped and delivery lead times reduced.
Gross margin
Gross margin was maintained at 41.5% (2022: 41.5%). In 2023, we sold finished
goods that were sourced and manufactured when global supply chain disruption
pushed input prices to a peak. Products were appropriately re-priced in
response, protecting our margins from inflation. We have seen reductions in
input costs over recent months, which should support margins going forward.
Freight costs halved as sea container prices returned to historic norms and
shorter manufacturing lead times reduced the need for air freight.
Production output increased. In our Asian plants, this resulted in improved
cost efficiency. In our smaller facilities in the United States, the need for
greatly increased output introduced some inefficiency which we are addressing
by transferring some production to Asia where manufacturing capacity is
greater and costs are lower.
Operating expenses
Statutory operating expenses reduced by £37.9 million to £106.8 million due
largely to lower costs in respect of the Comet legal case, which have been
treated as an Adjustment.
Adjusted operating expenses increased by £15.5 million to £93.2 million.
The increase comprised the following main items:
* c.£2.0 million of cost inflation
* £3.1 million of increased variable pay, including share-based payment
accounting charges
* £3.0 million of adverse currency movements
* £6.1 million of increased product development costs, which are discussed in
more detail below
The cost base was restructured in the second half following a slowdown in
demand, as part of the wider funding plan described below. Whilst 2024 will
bring inflationary increases and an extra depreciation on-cost associated with
the relocation of two leased premises in the US, we still expect our
restructuring plans to drive a material reduction in overheads year-on-year.
Operating profit
Statutory operating profit increased by £48.6 million to £24.5 million due
largely to items considered to be Adjustments, as set out later in this
Review.
Adjusted operating profit reduced by £4.8 million to £38.1 million and is
bridged as follows:
2022 Currency impact Constant currency 2023
Adjusted £ million
Revenue 290.4 (1.1) 27.1 316.4
Revenue growth % (0.3)% 9.3% 9.0%
Cost of sales (169.8) 0.6 (15.9) (185.1)
Gross margin 120.6 (0.5) 11.2 131.3
Gross margin % 41.5% - - 41.5%
Operating expenses (77.7) (3.0) (12.5) (93.2)
Operating profit 42.9 (3.5) (1.3) 38.1
Operating margin % 14.8% (1.2)% (1.6)% 12.0%
The impact of currency movements on profit is largely translational rather
than transactional and reflects unusually large movements in the value of
Sterling versus the US dollar over the last two years. Steps were taken in
late 2023 to reduce this impact going forward.
Whilst the impact of the FuG and Guth businesses acquired in 2022 has not been
separately reported as they were owned for almost all of 2022, it is worth
noting that on a comparative basis they grew at a healthy rate, with some of
the proceeds from this growth reinvested in the cost base to sustain progress
into 2024. Both businesses have leading product portfolios and a well-earned
reputation for expertise and quality. We are confident we can sustain their
progress as they increasingly leverage the wider Group’s resources.
Profit declined modestly in constant currency. A slowdown in activity levels
in the second half meant that growth did not fully support overhead
investments previously made, leading to the restructuring actions referenced
above. The result was also impacted by the product development cost increase
described below. We will continue to keep our overhead base under close
review, to ensure it is both affordable in the short-term and sufficient to
drive our long-term progress.
Product development costs
Product development is central to the Group’s long-term strategy. The Chief
Executive Officer’s Review sets out the progress made in the year.
Our accounting policy is to capitalise product development costs where they
meet criteria prescribed by International Financial Reporting Standards, then
start to amortise the capitalised costs when development activity is complete.
The following table summarises the accounting entries for product development
costs recorded in the year:
Adjusted costs £ million 2023 2022 Change vs 2022
Gross product development costs 27.3 24.3 3.0
Of which: capitalised in the year 1 (7.8) (7.3) (0.5)
Amortisation of capitalised costs 5.0 3.3 1.7
Impairment of capitalised costs 1.9 - 1.9
Net product development costs charged to Adjusted operating profit 26.4 20.3 6.1
1 Excluding capitalised interest costs
The Group’s development activities divide into two areas: i) traditional
development of new products for the mass market and ii) Engineering Services
work, where customised products are developed for a specific customer.
Our gross spending on product development activities increased by £3.0
million to £27.3 million in the year.
Our rate of capitalisation was broadly unchanged in the year at £7.8 million.
We take a conservative approach to capitalising, only doing so when we are
certain exploratory work has transitioned to become a technically and
commercially viable development project.
Following a review, a non-cash charge of £1.9 million was recorded to impair
previously capitalised development costs. This relates to certain Engineering
Services projects where the value deemed to be recoverable from future sales
to the customer does not support the carrying amount. This impacts a small
number of projects in an otherwise commercially successful area.
The same review recommended a change to the way in which we judge when
amortisation should start. Some Engineering Services projects follow an
iterative development process, in which the customer requests rolling design
changes to launched products, making it harder to judge when development has
ended, commercial sales have started, and therefore when amortisation should
commence – our new approach makes this clearer. The year-on-year increase in
amortisation is £1.7 million and we expect this increased run-rate for
amortisation to continue in future years.
Neither the impairment nor the increase in amortisation has any impact on
cash, EBITDA or leverage calculations.
Adjusted net finance expense
Adjusted net finance expense increased to £11.5 million (2022: £4.9 million)
as a result of higher levels of average debt and a rising Fed Funds rate.
Cash on deposit across the Group reduced materially in the year to minimise
borrowing costs.
To manage interest rate risk, we recently capped the interest rate applicable
to the majority of our borrowings at a rate slightly above current SOFR.
Tax and earnings per share
The effective tax rate applicable to Adjusted profit before tax was 37%,
higher than prior year.
The rate increase included a one-off element and was caused by challenges in
obtaining full benefit from available tax losses and credits in our US
business, which resulted in a write down to deferred tax assets. We aim to
make changes to our tax structure to improve this situation and therefore the
future tax rate.
Adjusted basic and Adjusted diluted earnings per share decreased by 49% to
81.9 pence and 49% to 81.8 pence respectively (2022: 160.6 pence and 160.1
pence).
Adjustments
In 2023, the Group incurred costs of £15.4 million (2022: costs of £68.2
million) which we consider to be Adjustments and have therefore excluded them
when calculating Adjusted profit before tax. These are summarised below:
Income / (cost) impact by Income Statement line £ million 2023 2022
Operating profit Net finance expense Profit before tax Operating profit Net finance expense Profit before tax
Restructuring costs (2.7) - (2.7) - - -
Site double running costs (2.6) (2.4) (5.0) - - -
Supply chain transformation (2.7) - (2.7) - - -
Comet legal case (2.1) - (2.1) (59.7) - (59.7)
Amortisation of acquired intangibles (3.2) - (3.2) (4.1) - (4.1)
ERP implementation (0.3) - (0.3) (3.8) - (3.8)
Acquisition costs (0.1) - (0.1) (2.4) - (2.4)
Other 0.1 0.6 0.7 3.0 (1.2) 1.8
Total (13.6) (1.8) (15.4) (67.0) (1.2) (68.2)
Restructuring costs of £2.7 million include severance payments of £1.8
million, product development write-offs of £0.4 million and a provision of
£0.5 million for IT licences that will no longer be used as a result of our
restructuring.
Site double running costs totalling £5.0 million arose from the relocation of
two leased facilities in California. The lease cost of the new facilities,
which under IFRS are accounted for as depreciation and interest, were treated
as Adjustments from the start of the lease to the date of initial occupation.
The interest element of the lease cost was £2.4 million with the depreciation
and other double running costs totalling £2.6 million. Both facilities are
now occupied.
In the Notes to the consolidated financial statements, restructuring costs and
site double running costs have been aggregated as a total of £7.7 million,
with £5.3 million impacting Operating Profit and an additional £2.4 million
impacting Net finance expenses.
Supply chain transformation costs of £2.7 million relate to initial design
work for our planned factory in Malaysia and temporary engineering resources
employed to transfer manufacturing from the West to Asia.
The Chief Executive Officer’s Review provides an update on the Comet legal
proceedings. The cost of £2.1 million in 2023 largely relates to legal fees
incurred in filing our appeal in the case. This is significantly lower than
the £59.7 million charged in 2022, which comprised £52.2 million of costs
directly relating to the dispute and an associated intangible asset impairment
of £7.5 million.
Adjusting items also includes a tax charge of £10.4 million. This includes a
£3.2 million tax credit in respect of the costs above plus a £13.6 million
charge relating to the Comet legal case. The latter entry reverses a tax
credit of £13.6 million booked in the prior year. In 2022, we assumed we
would be able to deduct the Comet legal settlement cost from taxable profit in
the US. We now recognise this will be challenging for the reasons set out in
the previous section.
Other items include a £0.1 million charge relating to fair value gain on
derivative financial instruments (2022: £0.1 million charge) impacting
operating profit. In addition, there is a £0.6 million gain (2022: £1.0
million loss) relating to modification of Revolving Credit Facility impacting
net finance expense. In 2022, there was also a £3.2 million foreign exchange
gain on the Euro-denominated loan relating to the FuG and Guth acquisitions.
We challenge ourselves to keep the list of Adjustments to an appropriate
minimum. It is very important that we continue to do such that the gap between
Adjusted and Reported results is as narrow as possible going forward.
Free Cash Flow
Reported £ million 2023 2022
Operating profit / (loss) 24.5 (24.1)
Depreciation, amortisation & impairment 22.6 25.4
EBITDA 47.1 1.3
Change in working capital 14.0 (33.5)
Provision for Comet legal case - 46.9
Other items 1.3 (12.6)
Operating cash flow 62.4 2.1
Net capital expenditure – Product development costs (9.5) (8.0)
Net capital expenditure – Other assets (30.5) (11.4)
Purchase of bond receivable for Comet legal case - (36.9)
Net interest paid (11.9) (5.5)
Tax paid (4.9) (4.1)
Other items (2.3) (5.8)
Free cash flow 3.3 (69.6)
Cash generated from operations increased significantly in the year,
particularly in the second half. This arose almost exclusively from working
capital. Working capital reduced by £1.2 million in the first half and £12.8
million in the second half, reflecting efforts to reduce raw material
inventory and work in progress. Stock levels reduced by £22.8 million in the
year to £91.6 million, with the closing balance representing 181 inventory
days. Further optimisation is expected.
The additional operating cash flow was absorbed by increased capital
expenditure and debt interest payments.
Capital expenditure on property, plant, equipment and software totalled £30.5
million (2022: £11.4 million). This included investment in two new sites in
California and construction of a new factory in Malaysia. The leases for the
previous sites in California expired and we were not able to extend them,
necessitating relocating to new leased premises, with associated refurbishment
and fit out. The total capex cost of these new sites is expected to be £24.2
million, with £16.6 million spent in 2023 and the balance due in 2024. The
Malaysia site remains an important long-term investment to provide flexible
low-cost manufacturing capacity. Construction of the facility was suspended in
late 2023. Total spend in 2023 was £6.0 million, with a residual amount of
£3.0 million to be paid in early 2024 for contracted work up until the point
of suspension. Minimal capex spend is expected on the project thereafter until
early 2025. Residual payments from 2023’s major projects are expected to
result in capital expenditure of approximately £25 million in 2024, including
capitalised product development costs.
Funding plan
The Group started 2023 with relatively high borrowing, with net debt equalling
2.7x Adjusted EBITDA. The market slowdown in the second half, combined with
spending on major projects above, made it challenging for the Group to
de-lever. We responded in late 2023 by implementing a comprehensive funding
plan. This consisted of three elements: management actions, amendments to the
Group’s borrowing facility and a share placing.
Management actions
Management actions consisted of:
* Headcount reductions and restrictions on discretionary spend, with an
expected full year benefit to EBITDA of £8-10 million.
* Expected inventory reduction of £10-20 million by the end of 2025
* Standardisation of supplier payment terms
* Capex reduction to discretionary levels
* Dividend suspension
Cost reduction actions have now been taken and the benefit is tracking in the
middle of the expected range. Further actions being taken at the time of this
report are expected to lower the cost base by a further c.£3 million
annually.
The reduction in inventory is ahead of schedule, as explained above.
Standardisation of supplier payment terms is underway. We have identified c.50
suppliers, with whom we spend c. $30m annually, whose terms need
standardisation. Terms have been extended with suppliers representing 15% of
this spend. We expect progress to accelerate in the first half of 2024.
Capex spend for 2024 has been reduced to maintenance levels beyond the
residual spend on major projects as explained above.
Amendments to the Group’s borrowing facility
In October 2023, we received unanimous support from our banking syndicate for
the following amendments to the terms of our Revolving Credit Facility:
* Leverage ratio: Net debt to Adjusted EBITDA covenant limit increased to 3.5x
until 31 December 2024, returning to 3.0x thereafter
* Interest cover: Adjusted EBITDA to Adjusted Net Finance Expense covenant
floor reduced to 3.0x until 30 September 2025, returning to 4.0x thereafter.
Share placing
During the year the Group generated net proceeds of £44.0 million from
issuing additional shares equal to 20% of the share capital of the Company.
The shares were issued at a premium to the then prevailing market price and
were over-subscribed.
Funding position at year-end
Following implementation of the funding plan, net debt at 31 December 2023 was
£112.7 million (31 December 2022: £151.0 million). Our gross cash balance
was £13.5 million (31 December 2022: £23.4 million).
Key financing ratios at 31 December 2023 were as follows:
* Leverage ratio: Net Debt to Adjusted EBITDA of 2.0x (2022: 2.7x)
* Interest cover: Adjusted EBITDA to Adjusted Net Finance Expense of 4.8x
(2022: 16.8x),
* £73.1 million of undrawn headroom within the Group’s committed bank
facility. The facility matures in June 2026 with a one-year extension option
(subject to lender consent).
Therefore, at 31 December 2023 the Group was comfortably in compliance with
its banking covenants and had ample funding liquidity. At this date, it would
have required:
* an increase in Net Debt of £81 million (or 72%) or a reduction in Adjusted
EBITDA of £23 million (or 42%) to breach the leverage ratio
* a reduction in EBITDA of £21 million (38%) or an increase in Net Finance
Costs of £7 million (61%) to breach the interest cover covenant.
The Director’s assessment of going concern has involved consideration of the
Group’s forecast covenant position in both a base case and a severe but
plausible downside case. The Group is forecast to remain in compliance with
its covenants in both the base and downside cases, albeit with relatively
modest additional headroom in the case of the latter. The Group has ample
borrowing liquidity in either scenario. Further details can be found in Note 1
of the consolidated financial statements. The Viability Statement is set out
in the 2023 Annual Report and Accounts.
Dividends and capital allocation
In late 2023, the Board took the difficult decision to suspend dividend
payments as part of the funding plan described above. Therefore, no final
dividend is proposed for the fourth quarter of 2023. Dividends previously
declared for 2023 are 18.0 pence (2022: 94.0 pence).
Dividends remain an important part of the Group’s long-term capital
allocation strategy. However, the Board believes it is in the long-term
interests of shareholders for debt reduction to be prioritised over
shareholder distributions until net debt returns sustainably to our target
range of 1-2x Adjusted EBITDA.
Our long-term aim is to operate in a range of 0-1x Adjusted EBITDA.
Matt Webb
Chief Financial Officer
XP Power Limited
Consolidated Income Statement
for the year ended 31 December 2023
£ Millions Note Adjusted Adjustments 2023 Adjusted Adjustments 2022
Revenue 2 316.4 - 316.4 290.4 - 290.4
Cost of sales (185.1) * (185.1) (169.8) - (169.8)
Gross profit 131.3 * 131.3 120.6 - 120.6
Other Income - - - - - *
Expenses
Distribution and marketing (63.5) (6.1) (69.6) (54.1) (4.1) (58.2)
Administrative (3.3) (7.4) (10.7) (3.3) (55.3) (58.6)
Research and development (26.4) (0.1) (26.5) (20.3) (7.6) (27.9)
Operating profit/(loss) 38.1 (13.6) 24.5 42.9 (67.0) (24.1)
Net finance expense (11.5) (1.8) (13.3) (4.9) (1.2) (6.1)
Profit/(loss) before tax 26.6 (15.4) 11.2 38.0 (68.2) (30.2)
Taxation 3 (9.8) (10.4) (20.2) (6.1) 16.7 10.6
Profit/(loss) for the year 16.8 (25.8) (9.0) 31.9 (51.5) (19.6)
Attributable to:
Equity shareholders (9.2) (20.0)
Non-controlling interests 0.2 0.4
Loss for the year (9.0) (19.6)
Earnings per share:
Basic earnings/(loss) per share 5 81.9 (127.3) (45.4) 160.6 (262.6) (102.0)
Diluted earnings/(loss) per share 5 81.8 (127.1) (45.3) 160.1 (261.7) (101.6)
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2023
2023 2022
Loss for the year (9.0) (19.6)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (5.3) 7.2
(5.3) 7.2
Items that will not be reclassified subsequently to profit or loss:
Currency translation differences arising from consolidation * *
Other comprehensive (loss)/profit for the year, net of tax (5.3) 7.2
Total comprehensive loss for the year (14.3) (12.4)
*Balance is less than £100,000.
The accompanying notes form an integral part of these financial statements.
XP Power Limited
Consolidated Balance Sheet
As at 31 December 2023
£ Millions Note 2023 2022
ASSETS
Current assets
Cash and cash equivalents 12.0 22.3
Inventories 91.6 114.4
Trade receivables 43.1 42.4
Bond receivable 36.7 37.0
Other current assets 8.1 8.0
Derivative financial instruments - *
Current income tax recoverable 0.5 2.5
Total current assets 192.0 226.6
Non-current assets
Cash and bank balances 1.4 1.1
Goodwill 75.6 77.5
Intangible assets 63.1 69.9
Property, plant and equipment 59.5 36.6
Right-of-use assets 54.0 54.9
Deferred income tax assets 0.7 15.1
ESOP loan to employees * *
Other investment * *
Total non-current assets 254.3 255.1
Total assets 446.3 481.7
LIABILITIES
Current liabilities
Current income tax liabilities 5.0 4.8
Trade and other payables 48.3 52.6
Derivative financial instruments - 0.1
Lease liabilities 1.4 2.4
Provisions 44.9 46.1
Borrowings 6 0.4 0.2
Total current liabilities 100.0 106.2
Non-current liabilities
Accrued consideration 1.7 1.5
Borrowings 6 125.7 174.2
Deferred income tax liabilities 9.3 10.5
Provisions 1.0 0.9
Lease liabilities 53.3 48.9
Total non-current liabilities 191.0 236.0
Total liabilities 291.0 342.2
NET ASSETS 155.3 139.5
EQUITY
Equity attributable to equity holders of the Company
Share capital 71.2 27.2
Merger reserve 0.2 0.2
Share option reserve 2.1 2.5
Treasury shares reserve * *
Translation reserve (0.9) 4.2
Other reserve 7.6 6.1
Retained earnings 74.4 98.4
154.6 138.6
Non-controlling interests 0.7 0.9
TOTAL EQUITY 155.3 139.5
*Balance is less than £100,000.
The accompanying notes form an integral part of these financial statements.
XP Power Limited
Consolidated Statement of Changes in Equity
for the year ended 31 December 2023
Attributable to equity holders of the Company
£ Millions Share capital Share option reserve Treasury shares reserve Merger reserve Translation reserve Total Total equity
Other Retained Non-
reserve earnings controlling interests
Balance at 27.2 5.6 * 0.2 -2.9 4.4 137 171.5 0.9 172.4
01-Jan-22
Exercise of share-based payment awards - -1.8 * - - 1.8 - * - *
Share-based payment expenses - 0.1 - - - - - 0.1 - 0.1
Tax on share-based payment expenses - -1.5 - - - - - -1.5 - -1.5
Dividends paid - - - - - - -18.6 -18.6 -0.4 -19
Acquisition of non-controlling interest - - - - - * - * * -
Future acquisition of non-controlling interest - - - - - -0.1 - -0.1 - -0.1
Exchange difference arising from translation of financial statements of foreign operations - 0.1 - - 7.1 - * 7.2 * 7.2
(Loss)/profit for the year - - - - - - -20 -20 0.4 -19.6
Total comprehensive income/(loss) for the year - 0.1 - - 7.1 - -20 -12.8 0.4 -12.4
Balance at 27.2 2.5 * 0.2 4.2 6.1 98.4 138.6 0.9 139.5
31-Dec-22
Exercise of share-based payment awards - -1.2 * - - 1.6 * 0.4 - 0.4
Share-based payment expenses - 1.1 - - - - - 1.1 - 1.1
Tax on share-based payment expenses - -0.2 - - - - - -0.2 - -0.2
Issuance of shares 44 - - - - - - 44 - 44
Dividends paid - - - - - - -14.8 -14.8 -0.3 -15.1
Future acquisition of non-controlling interest - - - - - -0.1 - -0.1 - -0.1
Exchange difference arising from translation of financial statements of foreign operations - -0.1 - - -5.1 - * -5.2 -0.1 -5.3
(Loss)/profit for the year - - - - - - -9.2 -9.2 0.2 -9
Total comprehensive income for the year - -0.1 - - -5.1 - -9.2 -14.4 0.1 -14.3
Balance at 71.2 2.1 * 0.2 -0.9 7.6 74.4 154.6 0.7 155.3
31-Dec-23
*Balance is less than £100,000.
The accompanying notes form an integral part of these financial statements.
.
XP Power Limited
Consolidated Statement of Cash Flows
for the financial year ended 31 December 2023
£ Millions Note 2023 2022
Cash flows from operating activities
Loss for the year (9.0) (19.6)
Adjustments for:
- Taxation 3 20.2 (10.6)
- Amortisation and depreciation 20.1 17.6
- Net finance expense 13.3 6.1
- Share-based payment expenses 1.1 0.1
- Fair value gain on derivative financial instruments (0.1) (0.1)
- Loss on disposal of property, plant and equipment * *
- Impairment loss on intangible assets 2.5 7.8
- Gain on disposal on rights-of-use of assets (0.1) -
- Unrealised currency translation loss/(gain) 0.3 (12.6)
- Provision for doubtful debts 0.1 *
- Provision for legal dispute - 46.9
Change in working capital, net of effects from acquisitions:
- Inventories 17.4 (24.8)
- Trade and other receivables (3.1) (9.5)
- Trade and other payables (1.8) 0.2
- Provision for liabilities and other charges 1.5 0.6
Cash generated from operations 62.4 2.1
Income tax paid, net of refund (4.9) (4.1)
Net cash provided by/(used in) operating activities 57.5 (2.0)
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired - (33.0)
Purchases and construction of property, plant and equipment (30.6) (7.5)
Additions of development costs (9.5) (8.0)
Additions of software and software under development * (3.9)
Purchase of bond receivables - (36.9)
Proceeds from disposal of property, plant and equipment 0.1 *
Proceeds from repayment of ESOP loans - *
Interest received 0.1 *
Payment of accrued consideration - *
Net cash used in investing activities (39.9) (89.3)
Cash flows from financing activities
Proceeds from issuance of new ordinary shares 44.0 -
Proceeds from borrowings 14.5 170.3
Repayment of borrowings (55.7) (35.6)
Principal payment of lease liabilities (2.7) (5.8)
Proceeds from exercise of share-based payment awards 0.4 *
Interest paid (12.0) (5.5)
Dividend paid to equity holders of the Company (14.8) (18.6)
Dividend paid to non-controlling interests (0.3) (0.4)
Bank deposit pledged (0.4) (1.1)
Net cash (used in)/provided by financing activities (27.0) 103.3
Net (decrease)/increase in cash and cash equivalents (9.4) 12.0
Cash and cash equivalents at beginning of financial year 22.1 8.8
Effects of currency translation on cash and cash equivalents (0.7) 1.3
Cash and cash equivalents at end of year 12.0 22.1
Balance is less than £100,000.
The accompanying notes form an integral part of these financial statements
Notes to the Consolidated Financial Statements
For the year ended 31 December 2023
1. Basis of preparation
This financial information is presented in Pounds Sterling and has been
prepared in accordance with the provisions of the Singapore Financial
Reporting Standards (International) (“SFRS(I)”) and International
Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
Going concern
The Group has available to it a US $ denominated Revolving Credit Facility
(RCF) of $255 million (£200 million). The facility matures in June 2026 and
therefore is committed throughout the minimum period for which going concern
is assessed, which is 12 months from the date of signing these financial
statements.
At 31 December 2023, the Group had drawn down $162 million (£127 million)
against this, leaving undrawn facility headroom of more than £73 million.
In late 2023, financial covenants within the RCF agreement were amended as
follows as part of the Funding Plan described in the Chief Financial Officer's
Review:
* Leverage ratio: Net Debt to Adjusted EBITDA of not more than 3.5x until 31
December 2024, returning to not more than 3.0x thereafter
* Interest cover: Adjusted EBITDA to Adjusted Net Finance Expense to not less
than 3.0x until 30 September 2025, returning to not less than 4.0x thereafter
Both covenants are tested quarterly.
As part of its going concern review, the Group developed base and severe but
plausible downside scenarios, assessing forecast liquidity and covenant
compliance in each case.
The key assumption in both scenarios is revenue, particularly revenue beyond
the initial six-month period for which the business already has visibility via
existing sales orders. Revenue in this period, H2 2024 in this case, will be
determined by, amongst other things, the assumed timing of the semiconductor
equipment market upcycle and when any overstocking in the sales channel will
be cleared. Other key assumptions relate to the impact of available
mitigating actions and future interest rates.
Given that the Group's borrowings are US $ denominated, net debt and therefore
the leverage ratio can be impacted by future movements in the US $ exchange
rate. In both Cases below, the US $ exchange rate is assumed to be $1.26.
Base Case
The Group's Base Case scenario is that the slowdown in revenue that commenced
in mid-2023 will continue until mid-2024 before recovering thereafter as
excess channel inventory is cleared and demand returns to the Semiconductor
Manufacturing Equipment market. This results in a 14% decline in revenue
between 2023 and 2024 in total.
The impact of this is mitigated by management actions to reduce costs, as set
out in the Chief Financial Officer's Review.
The Base Case assumes SOFR reduces gradually to 4.25% by 31 December 2024, in
line with current market expectations, lowering interest costs. The Group
has capped the variable interest rate applicable to the majority of its
borrowings at a rate slightly above the current SOFR.
In the Base Case, the Group remains in full compliance with its financial
covenants and with ample liquidity throughout the going concern assessment
period.
The lowest point of headroom in the Leverage Ratio covenant is at 30 September
2024. EBITDA would need to fall c.32% short of expectations in the period 1
January to 30 September 2024 for a breach to occur. Note that the current
order book covers nearly all of the first half’s revenue.
The lowest point of headroom in the Interest Cover covenant is at 30 September
2024. EBITDA would need to fall c.24% short of expectations in the period 1
January to 30 September 2024 for a breach to occur.
Downside Case
In the severe but plausible downside scenario, the slowdown in revenue that
commenced in mid-2023 continues throughout 2024 with no recovery. This results
in a 18% decline in revenue between 2023 and 2024 in total, with the
additional 4% decline versus the Base Case arising in H2 2024.
This case assumes a £5.0m reduction in annualised overheads, implemented from
the start of H2 2024, which reduces overheads for 2024 by 3.0%, in addition to
the reductions assumed in the Base Case.
The interest rate assumption is the same as the Base Case.
In the Downside Case, the Group remains compliant with its financial
covenants, albeit with lower headroom, and with ample liquidity throughout the
going concern assessment period.
The lowest point of headroom in the Leverage Ratio covenant is 31 December
2024. EBITDA would need to fall c.18% short of expectations in 2024 for a
breach to occur.
The lowest point of headroom in the Interest Cover covenant is 31 December
2024. EBITDA would need to fall c.4% short of expectations in 2024 for a
breach to occur.
The Group's funding position has improved considerably due to the Funding Plan
implemented in late 2023. New funds have been raised from a share Placing,
covenant terms were amended with the support of all the Group's lenders, and
actions were taken to preserve cash and reduce costs. Actions taken to
reduce cost illustrate the Group's ability to respond to changed circumstances
robustly and the benefit of these actions is now coming through.
The Directors are confident that the Base Case and Downside Case, including
the benefit of the Funding Plan, provides an appropriate basis for the going
concern assumption to be applied in preparing the financial statements, whilst
recognising lower headroom in the Downside Case.
2. Segmental reporting
The Group is organised on a geographic basis. The Group's products are a
single class of business; however, the Group is also providing information in
respect of sales by end market to assist the readers of this report.
The revenue by class of customer and location of the design win is as follows:
£ Millions Europe North America Asia 2023 Total Europe North America Asia 2022 Total
Semiconductor Manufacturing Equipment 3.4 86.0 12.8 102.2 2.7 93.8 16.9 113.4
Industrial Technology 67.6 54.0 14.7 136.3 61.3 44.5 13.8 119.6
Healthcare 26.8 44.5 6.6 77.9 22.5 28.9 6.0 57.4
Total 97.8 184.5 34.1 316.4 86.5 167.2 36.7 290.4
Revenue of £56.6 million (2022: £48.3 million) is derived from a single
external customer. This is attributable to the semiconductor manufacturing
equipment sector across all geographical regions.
Reconciliation of segment results to loss for the year:
£ Millions 2023 2022
Europe 24.2 21.5
North America 55.1 48.5
Asia 11.9 10.5
Segment results 91.2 80.5
Research and development (21.9) (19.8)
Manufacturing (11.5) (3.7)
Corporate cost from operating segment (19.7) (14.1)
Adjusted operating profit 38.1 42.9
Net finance expense (13.3) (6.1)
Adjustments – as set out below (13.6) (67.0)
Profit/(loss) before tax 11.2 (30.2)
Taxation (20.2) 10.6
Loss for the year (9.0) (19.6)
Reconciliation of adjusted measures
Adjusted measures
The Group presents adjusted operating profit and adjusted profit before tax by
adjusting for costs and profits which management believes to be significant by
virtue of their size, nature, or incidence or which have a distortive effect
on current year earnings. Such items may include, but are not limited to,
costs associated with business combinations, gains and losses on the disposal
of businesses, fair value movements, restructuring charges, acquisition
related costs and amortisation of intangible assets arising from business
combinations.
In addition, the Group presents adjusted profit for the year by adjusting for
certain tax charges and credits which management believe to be significant by
virtue of their size, nature, or incidence or which have a distortive effect.
The Group uses these adjusted measures to evaluate performance and as a method
to provide shareholders with clear and consistent reporting. See below for a
reconciliation of operating profit to adjusted operating profit, profit before
tax to adjusted profit before tax and profit for the year to adjusted profit
for the year. Further details relating to these adjustments are provided in
the Chief Financial Officer’s Review.
(i) A reconciliation of operating profit to adjusted operating profit is as
follows:
£ Millions 2023 2022
Operating profit/(loss) 24.5 (24.1)
Adjusted for:
Restructuring costs 5.3 0.1
Global supply chain transformation 2.7 -
Costs relating to legal dispute 2.1 52.2
Impairment of intangible assets * 7.5
Amortisation of intangible assets acquired from business combinations 3.2 4.1
Costs related to Enterprise Resource Planning system implementation 0.3 3.8
Acquisition costs 0.1 2.4
Foreign exchange gain on loan drawn down to finance acquisition - (3.2)
Revolving credit facility fees * 0.2
Fair value adjustments on derivative financial instruments (0.1) (0.1)
13.6 67.0
Adjusted operating profit 38.1 42.9
(ii) A reconciliation of profit before tax to adjusted profit before tax is
as follows:
£ Millions 2023 2022
Profit/(loss) before tax 11.2 (30.2)
Adjusted for:
Restructuring costs 7.7 0.3
Global supply chain transformation 2.7 -
Costs relating to legal dispute 2.1 52.2
Impairment loss on intangible assets * 7.5
Amortisation of intangible assets acquired from business combination 3.2 4.1
Costs related to Enterprise Resource Planning system implementation 0.3 3.8
Acquisition costs 0.1 2.4
Foreign exchange gain on loan drawn down to finance acquisition - (3.2)
Revolving credit facility fees * 0.2
(Gain)/loss on modification of revolving credit facility (0.6) 1.0
Fair value gain on derivative financial instruments (0.1) (0.1)
15.4 68.2
Adjusted profit before tax 26.6 38.0
(iii) A reconciliation of profit for the year to adjusted profit for the year
is as follows:
£ Millions 2023 2022
Loss for the year (9.0) (19.6)
Adjusted for:
Restructuring costs 7.7 0.3
Global supply chain transformation 2.7 -
Costs relating to legal dispute 2.1 52.2
Impairment loss on intangible assets * 7.5
Amortisation of intangible assets acquired from business combinations 3.2 4.1
Costs related to Enterprise Resource Planning system implementation 0.3 3.8
Acquisition costs 0.1 2.4
Foreign exchange gain on loan drawn down to finance acquisition - (3.2)
Revolving credit facilities fees * 0.2
(Gain)/loss on modification of revolving credit facility (0.6) 1.0
Fair value gain on derivative financial instruments (0.1) (0.1)
Non-recurring tax charge/(benefits) 1 10.4 (16.7)
25.8 51.5
Adjusted profit for the year 16.8 31.9
1 Adjusted for tax on specific items relating to completed acquisitions of
£16,526 (2022: £0.6 million), gain on foreign exchange impact on
Euro-denominated loan drawn down to finance the acquisition of £nil million
(2022: £0.5 million), costs related to Enterprise Resource Planning system
implementation of £49,878 (2022: £0.8 million), costs relating to legal
dispute of £0.5 million (2022: £13.6 million), impairment of intangible
assets of £5,272 (2022: £2.0 million), gain on modification of revolving
credit facility of £0.1 million (2022: £ 0.2 million), restructuring cost of
£1.9 million (2022: £30,117), global supply chain transformation £0.7
million (2022: £nil), fair value impact on derivative financial instruments
of £15,775 (2022: £22,462) and tax loss relating to legal claim £13.6
million (2022: £nil).
3. Income taxes
£ Millions 2023 2022
Singapore corporation tax:
- current year 3.6 2.8
- over provision in prior financial year (0.3) (0.2)
Overseas corporation tax:
- current year 3.3 4.1
- under/(over) provision in prior financial year * *
Withholding tax 0.6 0.6
Current income tax 7.2 7.3
Deferred income tax:
- current year 13.7 (17.1)
- over provision in prior financial years (0.7) (0.8)
Tax expense/(income) 20.2 (10.6)
Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions at the balance sheet date.
The differences between the total income tax expense shown above and the
amount calculated by applying the standard rate of Singapore income tax rate
to the profit before income tax are as follows:
£ Millions 2023 2022
Profit/(loss) before income tax 11.2 (30.2)
Tax on profit/(loss) at standard Singapore tax rate of 17% (2022: 17%) 1.9 (5.1)
Tax incentives (0.9) (0.5)
Higher rates of overseas corporation tax (0.9) (4.6)
Deduction for employee share options * 0.2
Non-deductible expenditure 1.1 1.0
Non-taxable income (0.2) (1.0)
Deferred tax effect of change in tax rate 0.4 (0.2)
Deferred tax asset on tax losses and wear and tear allowances not provided for 5.8 -
Over provision of tax in prior financial years (1.0) (1.0)
Deferred tax arising from adjustments to the value of deferred tax assets 13.4 -
Withholding tax 0.6 0.6
Tax expense/(income) 20.2 (10.6)
4. Dividends
Amounts recognised as distributions to equity holders in the period:
2023 2022
Pence per share £ Millions Pence per share £ Millions
Prior year third quarter dividend paid 21.0* 4.1 21.0 4.1
Prior year final dividend paid 36.0* 7.1 36.0 7.1
First quarter dividend paid 18.0^ 3.6 18.0* 3.6
Second quarter dividend paid - - 19.0* 3.8
Total 75.0 14.8 94.0 18.6
* Dividends in respect of 2022 (94.0p).
^ Dividends in respect of 2023 (18.0p).
No further dividends are proposed in respect of 2023 financial year.
5. Earnings per share
The calculations of the basic and diluted earnings per share attributable to
the ordinary equity holders of
the Company are based on the following data:
£ Millions 2023 2022
Loss for the purposes of basic and diluted (loss/)earnings per share Loss attributable to equity holders of the Company (9.2) (20.0)
Loss for earnings per share (9.2) (20.0)
Number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands) 20,281 19,616
Effect of potentially dilutive share options (thousands) 23 63
Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 20,304 19,679
(Loss)/earnings per share:
Basic (45.4)p (102.0)p
Basic adjusted* 81.9p 160.6p
Diluted (45.3)p (101.6)p
Diluted adjusted * 81.8p 160.1p
*Reconciliation to compute the adjusted earnings from operations is as per
below:
£ Millions
Earnings for the purposes of basic and diluted earnings per share
Loss attributable to equity holders of the Company (9.2) (20.0)
Restructuring costs 7.7 0.3
Global supply chain transformation 2.7 -
Costs relating to legal dispute 2.1 52.2
Impairment loss on intangible assets * 7.5
Amortisation of intangible assets acquired from business combination 3.2 4.1
Costs related to Enterprise Resource Planning system implementation 0.3 3.8
Acquisition costs 0.1 2.4
Foreign exchange gain on loan drawn down to finance acquisition - (3.2)
Revolving credit facilities fees * 0.2
(Gain)/loss on modification of revolving credit facility (0.6) 1.0
Fair value gain on derivative financial instruments (0.1) (0.1)
Non-recurring tax charge/(benefits) 10.4 (16.7)
Adjusted earnings for the purposes of basic adjusted and diluted adjusted earnings per share 16.6 31.5
6. Borrowings
The Group’s debt is sourced from a US$ 255m Revolving Credit Facility
(“RCF”). The RCF facility is committed until June 2026. The facility has
no fixed repayment terms until maturity. The revolving loan is priced based on
the Secured Overnight Financing Rate (SOFR) administered by the Federal
Reserve Bank of New York plus a margin. The margin applicable to drawn amounts
range from 1.5-3.25%, depending on the Net Debt:Adjusted EBITDA ratio for the
previous quarter. The non-utilisation fee payable for the undrawn element of
the facility is priced at 40% of the margin applicable to drawn amounts.
The covenants attaching to the RCF were renegotiated in November 2023. The Net
Debt/Adjusted EBITDA covenant was increased to 3.5x until 31 December 2024,
returning to 3.0x thereafter. The Adjusted EBITDA/Net Finance Expense covenant
was reduced to 3.0x until 30 September 2025, returning to 4.0x thereafter.
The borrowings are repayable as follows:
£ Millions 2023 2022
On demand or within one year 0.4 0.2
In the second year - -
In the third year 125.7 174.2
In the fourth year - -
Total 126.1 174.4
All loan covenants have been complied with as at 31 December 2023.
7. Principal risks and uncertainties
Board Responsibility
The Group has well established risk management processes to identify and
assess risks. The Group’s principal risks are regularly reviewed by the
Board and are mapped onto a risk universe from which risk mitigation or
reduction can be tracked and managed. This helps facilitate further
discussions regarding risk appetite and draws out the risks that require a
greater level of attention.
Disruption to manufacturing
An event that results in the temporary or permanent loss of a manufacturing
facility could result in the Group being unable to sell products to customers.
This could include climate-related events, such as severe weather, or
government-imposed restrictions or compulsory purchase orders. As the Group
manufactures approximately 80% of revenues, this would cause a short-term loss
of revenues and profits and disruption to our customers and therefore would
risk reputational damage.
Risk mitigation – We now have two facilities (China and Vietnam) where we
can produce most of our power converters. We have disaster recovery plans in
place for both facilities.
We have undertaken a risk review with manufacturing management to identify and
assess risks which could cause a serious disruption to manufacturing, and
identified and implemented actions to reduce or mitigate these risks where
possible.
Our key facilities are owned or on long-term leases and we have business
interruption insurance in place.
Supply chain risks
The Group is dependent on retaining its key suppliers and ensuring that
deliveries are on time and materials supplied are of an appropriate quality.
As the Group makes significant use of its Asian manufacturing footprint to
supply US and European markets, it is exposed to any risks relating to threats
to global shipping. Whilst alternative routes by sea or air freight can be
used, these would come with a time or cost impact.
Whilst global supply chains progressively normalised in 2023, some key product
components remain on relatively long lead times, increasing the risk of
shortages at the point of manufacture.
Risk Mitigation – Components are dual sourced wherever possible.
We conduct regular audits of our key suppliers.
Appropriate amounts of safety inventory of key components are held and these
levels are regularly reviewed with reference to demand and lead times.
We monitor risks to our established transport routes, developing contingency
plans and ensuring our customers are kept aware of issues and implications.
Market/customer-related risks
The semiconductor market represents a significant % of Group revenue and is
inherently cyclical.
A material proportion of the Group’s revenue is derived from its largest
customers. Demand for our products may be impacted by gains or losses of
business with them, or changes in their inventory levels of our products.
A significant semiconductor downturn could have a material adverse impact on
the Group’s revenue, profitability and financial condition.
If the Group lost some of its key customers, this could have a material impact
on its financial condition and results of operations. However, for the year
ended 31 December 2023, no single customer accounted for more than 18% of
revenue, and that revenue was spread over a large number of individual
programmes.
Risk mitigation - Staying close to our key customers and understanding the
end-market to provide visibility of likely market movements.
The Group focuses on providing excellent service. Customer complaints and
non-conformances are reviewed monthly by members of the Executive Leadership
team.
Whilst visibility of customer inventory levels is naturally limited, our sales
teams discuss this with customers wherever possible and reflect it in their
demand projections.
Product-related risks
A product recall due to a quality or safety issue would have serious
repercussions to the business in terms of potential cost and reputational
damage as a supplier to critical systems.
Failure to develop new products or to not respond to new disruptive
products/technologies would impact the Group’s future revenue stream.
Risk mitigation – We perform 100% functional testing on all own-manufactured
products and 100% hi-pot testing, which determines the adequacy of electrical
insulation. This ensures the integrity of the isolation barrier between the
mains supply and the end user of the equipment. We also test all the medical
products that we manufacture to ensure the leakage current is within the
medical specifications.
Where we have contracts with customers, we always limit our contractual
liability regarding recall costs.
We prioritise investment and work closely with our customers to ensure that
our product offering remains market-leading.
IT/data
The Group is reliant on information technology in multiple aspects of the
business from communications to data storage. Assets accessible online are
potentially vulnerable to theft and customer channels are vulnerable to
disruption. Any failure or downtime of these systems or any data theft could
have a significant adverse impact on the Group’s reputation or its ability
to operate.
Risk mitigation – The Group has a defined Business Impact Assessment which
identifies the key information assets; replication of data on different
systems or in the Cloud; an established backup process in place as well as a
robust anti-malware solution on our networks.
Internally produced training materials are used to educate users regarding
good IT security practice and to promote the Group’s IT policy.
All recommendations from an outsourced internal auditor assessment have been
implemented to further mitigate cyber risk and safeguard the Group’s assets.
Funding/Treasury
The Group is reliant on external bank funding and needs to comply with the
related covenants. The Group could find itself in breach of banking covenants
and lose access to its funding.
Changes in interest rate % impacts the interest payments and charges.
The majority of the Group’s sales and material purchases are in US dollars,
creating a natural transactional hedge. However, a minority of sales and costs
are denominated in other currencies, exposing the Group to some transactional
risks. The Group faces translation currency risk from reporting in sterling.
This could lead to material adverse movements in reported earnings and cash
flows.
Risk mitigation - The Group has set a clear and conservative leverage policy
and performs detailed and regular cash forecasting to ensure the leverage
targets are met.
The Group reviews balance sheet and cash flow currency exposures and, where
appropriate, uses forward exchange contracts to hedge these exposures. The
Group does not hedge any translation of its subsidiaries’ results to
sterling for reporting purposes.
Legal & regulatory
The Group operates in multiple jurisdictions with applicable trade and tax
regulations that vary. The Group ships product internationally, both in terms
of the internal supply chain and from third party supplier and to end
customers and also transfers manufacturing from North America to Asia
locations. Compliance with export laws is critical. Failing to comply with
local regulations could impact the profits and reputation of the Group and its
ability to conduct business.
Intellectual property in terms of product design is an important feature of
the power converter industry.
The effective tax rate of the Group is affected by where its profits fall
geographically. The Group’s effective tax rate could therefore fluctuate
over time and have an impact on earnings and potentially its share price. It
could also fluctuate if an efficient tax structure is not maintained.
Risk mitigation – The Group hires employees with relevant skills and uses
external advisers to keep up to date with changes in regulations and to remain
compliant.
Export compliance software is in place to monitor customers and sales.
An outsourced internal audit function provides risk assurance in targeted
areas of the business and recommendations for improvement. The scope of these
reviews includes behaviour, culture, and ethics.
The Group establishes clear healthy and safety policy and procedures.
M&A
The Group may elect to make strategic acquisitions. A degree of uncertainty
exists in valuation, particularly in evaluating potential synergies.
Post-acquisition risks arise in the form of change of control and integration
challenges. Any of these could influence the Group’s revenues, operations
and financial performance.
Risk mitigation – Preparation of robust business plans and cash projections
with sensitivity analysis and the help of professional advisers as
appropriate.
Post-acquisition reviews are performed to extract “lessons learned”.
People-related risks
The future success of the Group is substantially dependent on the continued
services and continuing contributions of its Directors, senior management, and
other key personnel. The loss of key employees could have a material adverse
effect on the Group’s business.
Risk mitigation – The Group undertakes performance evaluations and reviews
to help it stay close to its key personnel. Where appropriate, the Group also
makes use of financial retention tools such as equity awards.
Climate-related risks
The Group is exposed to climate related risks that can have a negative impact
on the business. Severe weather could affect our own locations or the supply
chain. Not meeting net zero targets may cause reputational damage and
reduced revenue.
Risk Mitigation – Ensure we maintain as flexible a manufacturing footprint
as possible to allow us to respond any single-site disruption. We look to have
dual-sourced supplies for material purchases and conduct regular review of
safety inventories to ensure we have sufficient stocks.
We put relevant policies and KPIs to ensure environmental targets are
deliverable.
8. Responsibility Statement
The statements below have been prepared in connection with the Company's full
Annual Report and Accounts for the year ended 31 December 2023. Certain parts
are not included in this announcement.
The Directors consider that the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable, and provides the information necessary
for shareholders to assess the Group's position, performance, business model
and strategy.
Each of the Directors, whose names and functions are listed in the Annual
Report and Accounts confirm that, to the best of their knowledge:
* that the balance sheet of the Company and consolidated financial statements
of the Group, are drawn up in accordance with the applicable set of accounting
standards, to give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group for the year ended 31 December 2023;
and
* the Annual Report and Accounts includes a fair review of the development and
performance of the business and the financial position of the Group and the
Company, together with a description of the principal risks and uncertainties
they face.
9. Other information
XP Power Limited (the “Company”) is listed on the London Stock Exchange
and incorporated and domiciled in Singapore. The address of its registered
office is 19 Tai Seng Avenue, #07-01, Singapore 534054.
The financial information set out in this announcement does not constitute the
Company’s statutory accounts for the years ended 31 December 2022 or 2023.
The financial information for the year ended 31 December 2022 is derived from
the XP Power Limited statutory accounts for the year ended 31 December 2022,
which have been delivered to the Accounting and Corporate Regulatory Authority
in Singapore. The auditors reported on those accounts; their report was
unqualified. The statutory accounts for the year ended 31 December 2023 will
be finalised based on the financial information presented by the Directors in
this earnings announcement and will be delivered to the Accounting and
Corporate Regulatory Authority in Singapore following the Company’s Annual
General Meeting.
Whilst the financial information included in this earnings announcement has
been computed in accordance with SFRS(I) and IFRS as issued by the IASB, this
announcement does not itself contain sufficient information to comply with
SFRS(I) and IFRS as issued by the IASB. The Company expects to publish full
financial statements that comply with SFRS(I) and IFRS as issued by the IASB.
This announcement was approved by the Directors on 4 March 2024.
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