REG-XP Power Ltd: Annual Results for the year ended 31 December 2020
02/03/2021 07:05
2 March 2021
XP Power Limited
(“XP Power” or “the Group” or the “Company”)
Annual Results for the year ended 31 December 2020
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 2020.
2020 2019 Change
Order intake £258.0m £214.9m +20%
Revenue £233.3m £199.9m +17%
Gross margin 47.2% 45.1% +210bps
Final dividend per share 36.0p 0p -
Total dividend per share 74.0p 55.0p +35%
Adjusted
Adjusted operating profit (1) £46.0m £35.0m +31%
Adjusted profit before tax (1) £44.3m £32.3m +37%
Adjusted diluted earnings per share (1) 198.4p 141.4p +40%
Reported
Operating profit £37.4m £26.7m +40%
Profit before tax £35.7m £24.0m +49%
Diluted earnings per share 160.3p 105.0p +53%
Operating cash flow £45.6m £46.2m -1%
Net debt £17.9m £41.3m -57%
(1)For details on adjusted measures refer to note 4 and note 5 of the
consolidated financial statements.
* Strong growth in order intake and revenue driven by the recovery in the
Semiconductor Manufacturing Equipment sector and demand from our Healthcare
customers as they increased supply of critical care devices for the treatment
of COVID-19, offsetting weakness in Industrial Technology sector.
* Order intake increased by 20% to £258.0 million, including £15 - £20
million related to COVID-19 Healthcare orders.
* Revenue grew 17% to £233.3 million.
* Gross margin increased to 47.2% due to manufacturing efficiencies from
increased production.
* Net debt of £17.9 million, a decrease of 57% compared to 2019, driven by
strong operating cash conversion.
* Expansion of our Vietnam manufacturing facility and active supply chain
management enabled the Group to demonstrate its resilience and maintain
product deliveries to customers, despite the temporary shutdown of our Chinese
factory during Q1 2020 in response to COVID-19.
* Further production and supply chain optimisation across the Group, including
the transfer of low-power, high voltage DC-DC manufacturing from Nevada to
Vietnam.
* Proposed final dividend for 2020 of 36 pence per share (2019: nil due to
COVID-19 uncertainty). Total dividend for 2020 74 pence per share (2019: 55
pence per share).
* The Group enters 2021 with an order book of £124.1 million (2019: £98.2
million), which gives us confidence for the year ahead.
James Peters, Chairman, commented:
“The year was dominated by the exceptional challenges of COVID-19. A key
priority throughout has been to protect the health and wellbeing of our
colleagues and I would like to thank them all for their commitment and
adaptability during this unprecedented period.
We delivered record orders, revenues and earnings, and strong cash generation,
in 2020, against a difficult global backdrop. Weakness in our Industrial
Technology sector was more than made up for by a strong recovery in the
Semiconductor Manufacturing Equipment sector throughout the year and demand
from Healthcare customers providing critical care equipment for the treatment
of COVID-19. We are proud of what we achieved in 2020 and our contribution to
helping our customers produce life-saving equipment rapidly, at a time when
the supply chain was adversely affected by the pandemic.
We have continued to invest in the business through this difficult period and
have delivered an excellent set of results without benefitting from any
furlough scheme, reducing our workforce, or taking advantage of any
discretionary government COVID-19 financing. The strength of our performance
enabled us to quickly reinstate dividend payments from the second quarter as
the Group’s outlook became clearer.
Trading conditions in the early months of 2021 give grounds for continued
optimism. Despite the challenges and uncertainty that remain regarding
COVID-19 we enter the year with a strong order book and an ongoing positive
backdrop within the Semiconductor Manufacturing Equipment sector. While we
are mindful of the headwind that the recent strengthening of Sterling creates
and the continued uncertainty created by COVID-19 we currently expect further
underlying revenue growth this financial year. We remain excited regarding the
long-term prospects of the Group.”
Enquiries:
XP Power
Gavin Griggs, Chief Executive Officer +44 (0)118
976 5155
Johan Olivier, Acting Chief Financial Officer +44 (0)118 976
5155
Citigate Dewe Rogerson
Kevin Smith/Jos Bieneman
+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 Industrial Technology (circa 40% of
sales), Healthcare (circa 30% sales) and Semiconductor Manufacturing Equipment
(circa 30% of sales) sectors. Once designed into a programme, XP Power has a
revenue annuity over the life cycle of the customer’s product which is
typically 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 250 Index. XP Power
serves a global blue-chip customer base from 29 locations in Europe, North
America, and Asia.
For further information, please visit xppowerplc.com
Chairman’s Statement
Our Progress in 2020
We made significant strategic progress in 2020 and produced an excellent set
of results in a difficult environment. The year was dominated by the
exceptional challenges of the global health crisis caused by COVID-19. A key
priority throughout has been to protect the health and wellbeing of our
colleagues and I would like to thank them all for their commitment and
adaptability during this unprecedented period.
We have delivered record orders, revenues and earnings, and strong cash
generation, against a difficult global backdrop. COVID-19 impacted the demand
dynamics in our Industrial Technology sector, but this was more than offset by
the continuation of the strong recovery in the Semiconductor Manufacturing
Equipment sector and exceptional demand from our Healthcare customers for
critical care equipment for the treatment of COVID-19 affected patients. We
can feel proud of what we achieved in 2020 and our contribution to helping our
customers produce much needed life-saving equipment rapidly, and at a time
when the global supply chain was being adversely affected by the pandemic.
Having taken the difficult decision to cancel both the final 2019 dividend and
first quarter 2020 dividend in response to the uncertainty caused by the
COVID-19 crisis, our strong cash generation and confidence in the Group’s
long-term prospects enabled us to resume the payment of dividends from Q2
2020. The Board is proposing a final dividend of 36p (2019: nil) which, if
approved will bring the total 2020 dividend per share to 74p (2019: 55p).
COVID-19
The Group’s presence in China meant it was exposed to the challenges of the
COVID-19 pandemic earlier than many international organisations, as our
Chinese manufacturing facility was unable to re-open as planned in late
January 2020 following the Chinese New Year. As the seriousness of the
situation became clear, we quickly established very clear priorities and
protocols for the organisation to manage through the challenges of the
pandemic, namely:
1) Ensuring the safety and wellbeing of all our
colleagues;
2) Keeping our customers supplied with product
(particularly those providing critical healthcare equipment for the treatment
of COVID-19 patients); and
3) Preserving cash and maintaining liquidity.
This swift response was well received by our people and customers and was
instrumental to us successfully navigating through the challenges that we
subsequently faced. Our China facility reopened on 17 February 2020 and we
have kept all production and warehouse facilities operational since then,
apart from short breaks for COVID-19 decontaminations. This clearly
demonstrates the built-in resilience of our supply chain.
We are continuing to monitor the global situation in respect of COVID-19
closely and remain mindful of the significant challenges and uncertainty it
continues to present.
Our Board
In October 2020 we announced that, after over seventeen years as Chief
Executive Officer, Duncan Penny had informed the Board of his intention to
retire as CEO. Duncan stepped down as CEO on 31 December 2020 and will leave
the Board and the Group at the Annual General Meeting on 20 April 2021.
The Board also announced that, following a thorough search process, Gavin
Griggs would succeed Duncan as Chief Executive Officer from 1 January 2021.
Gavin has been Chief Financial Officer at XP Power since November 2017 and has
worked very closely with Duncan in that time. Gavin is a proven business
leader with significant experience and expertise across a variety of
growth-oriented business sectors and the Board is confident that Gavin is the
right person to take XP Power forward. The transition from Duncan to Gavin has
been smooth as anticipated and I have confidence that under his leadership the
Group will deliver further shareholder value in the future.
The search for Gavin’s successor as Chief Financial Officer is underway, and
an appointment will be announced in due course.
Duncan joined XP Power as Chief Financial Officer in 2000, becoming CEO in
2003, and has led our business with distinction. On behalf of the entire XP
Power team, I want to thank Duncan for his significant and enduring
contribution to our Group and wish him well for the future.
Our People and Our Values
The success of any organisation is dependent on its culture and the people
and talent within it. The Board continues to work closely with the Executive
Leadership Team to ensure the Group is identifying and developing its key
people and bringing new talent and capabilities into the business to help
underpin our growth ambitions. We recruited a leader for our Global Supply
Chain and a Chief People Officer during the year. These are two important
senior executive appointments which have significantly enhanced our
capabilities and demonstrate the ambition we have for the Group.
I am proud of what our people have achieved in 2020 and I know from our
engagement with them that they are proud to be part of the XP Power team.
Strategy Review
The Group has consistently executed a clearly outlined strategy for several
years which has successfully delivered meaningful value creation for all
stakeholders. In summary, it is built on the development of a market leading
range of competitive products to enable further penetration of existing target
accounts, combined with a drive to move our product portfolio up the power and
voltage scale. This product portfolio development and the significant
expansion of our addressable markets has been achieved through a combination
of internal organic investment and targeted acquisitions. Although we are one
of a few power companies in the world with a product portfolio across such a
broad power and voltage spectrum we still have relatively low market share, we
can use our product portfolio and engineering services and capabilities to
provide customers with a complete power solution and increase our market
share.
Our strategy continues to work effectively to achieve sustainable long-term
earnings growth through market share gains in our target sectors and
customers. This success is demonstrated by our consistent performance and
resilience over the cycles in the sectors in which we operate. We are
confident we can continue to develop market leading products and, encouraged
by the potential of our product and sales pipeline, to continue to deliver
organic growth.
Following a bank refinancing in 2020, we have sufficient committed funds to
support targeted acquisitions to enhance our product portfolio and expand our
addressable market. We see acquisitions as an important element of our growth
strategy but will maintain a disciplined approach. We also continue to make
improvements to our systems and processes, in our product life cycle
management and our supply chain to support the sales growth we are generating,
as well as bringing new talent into the business to support our continued
growth.
While our new CEO will continually review our strategic progress, we expect
development to be evolutionary not revolutionary but with a heightened focus
on execution and organisational and supply chain agility.
Sustainability
We are committed to the long-term sustainable success of XP Power in all its
aspects. In 2020 we engaged with our key stakeholders to better understand
which aspects of their relationship with XP Power were most important to them,
with a focus on sustainability in particular. We have incorporated this
feedback into our sustainability strategy and have reported this in our 2020
Annual Report.
Sustainability has been a long-term focus for XP Power. In 2009 we
established an environmental committee led by the CEO which set the bold goal
of leading our industry on environmental matters. We have helped lead the
industry in developing “green” products which deliver power more
efficiently and consume less energy, while powering their application, or in
standby mode. These products reduce the annual CO(2) emissions of the
equipment throughout its life and are by far the biggest positive impact we
can make on the environment. We have set Company targets to reduce CO(2)
emissions intensity by a minimum of 3% per annum over the short and medium
term and an aspiration to achieve carbon neutrality by 2040. During 2021 we
will develop further strategies to bring this date forward.
Sustainability also resonates with our employees. We have adopted energy and
water saving practices throughout the Group and have a network of passionate
environmental representatives who promote best practices and raise awareness
of sustainability issues, including social ones, across our global
workforce.
Outlook
We delivered an excellent performance in 2020 despite facing significant
external challenges, once again demonstrating the resilience of our business
model and quality of our people.
Trading conditions in the early months of 2021 give grounds for continued
optimism. Despite the challenges and uncertainty that remain regarding
COVID-19, we entered the year with a strong order book and with a positive
backdrop within the Semiconductor Manufacturing Equipment sector. While we
are mindful of the headwind that the recent strengthening of Sterling creates
and the continued uncertainty created by COVID-19 we currently expect further
underlying revenue growth this financial year. We remain excited regarding the
long-term prospects of the Group.
James Peters
Chairman
Performance: Operational Review
Review of our year
We are proud of both our financial performance and our contribution to the
fight against COVID-19 in 2020. The Group produced an excellent set of results
while ensuring the safety and wellbeing of our people and we continued to make
good strategic progress despite the challenges of navigating through the
COVID-19 pandemic. This is all down to the hard work and commitment of the
XP team globally.
The Semiconductor Manufacturing Equipment sector, which had started to recover
in terms of order intake in the fourth quarter of 2019, performed strongly
throughout 2020. The strong performance was underpinned by a combination of
increased end market demand and our market share gains from design wins on new
tools, driven by advancements in technology in the logic and memory segments.
The ongoing design wins are being supported by the development of closer
relationships with our customers. In addition, we benefitted from
unprecedented demand from our Healthcare customers as they boosted production
to provide critical care equipment in response to COVID-19. Our exposure to
these two sectors more than made up for COVID-19-related weakness in our
Industrial Technology sector.
The recent expansion of our Vietnamese production facility was fundamental in
mitigating the effects of Section 301 Tariffs in 2019 and it has once again
proven its value in 2020. Our Vietnam facility allowed us to keep product
flowing to our customers while our Chinese facility was not able to operate
due to Chinese government imposed COVID-19 restrictions. Our diversified
manufacturing footprint and supply chain resilience is recognised as an
important strategic differentiator by our key customers, many of whom are
concerned about USA/China trade relations and general supply chain resiliency.
The new Enterprise Resource Planning (ERP) system deployed in certain sites in
the fourth quarter of 2019 is running well and we are making significant
progress with production and operations efficiency. The deployment is in line
with our vision of being the first-choice power solutions provider, delivering
the ultimate experience to our customers and making XP Power a great place to
work for our people.
COVID-19 – The Resilience of Our Business Model
We first experienced the impact of COVID-19 in January 2020, as Chinese
authorities extended the Chinese Lunar New Year holiday and imposed travel and
operational restrictions to control the virus. These measures caused a
two-week delay to the recommencement of production at our Kunshan facility,
which re-opened on 17 February 2020. We immediately implemented all the
recommended prevention and control procedures in our Kunshan facility and
deployed these same procedures in Vietnam to protect our people and keep the
business operating safely.
The difficulties our people experienced in travelling back to work and the
quarantine requirements also meant that we were operating at a reduced level
of capacity into April 2020. During this period demand from our customers
supplying critical healthcare equipment to treat patients with the virus
soared and we received an estimated £15 to £20 million of additional
COVID-19 specific orders. Our customers in the Semiconductor Manufacturing
Equipment sector were also experiencing strong demand. The combination of
these factors created an urgent need for our products at a time when our
capacity in China was severely restricted. Positively, Vietnam was not
affected by such severe restrictions, so we were able to produce greater
quantities from Vietnam during this difficult period, while accelerating the
transfer of more products and materials from China to Vietnam to maintain
supply to our customers.
During the second quarter of 2020 the China supply chain was operating
normally with reliable supply of components and other materials
re-established. We expanded headcount in both production facilities and
invested in additional capital equipment in Vietnam to increase production for
the third quarter of 2020 and beyond.
Our production facilities in North America and logistics facilities around the
world have been able to operate normally with prevention controls in place in
line with all public health advice.
We have continued to invest in the business through this difficult period and
have achieved an excellent set of results without benefitting from any
furlough scheme, reducing our workforce, or taking advantage of discretionary
government COVID-19 financing or other optional financial concessions.
Balance sheet and liquidity
In response to COVID-19 we prioritised the preservation of cash and the
availability of sufficient liquidity to manage potential short-term downside
risks. As a result, we took the difficult decision to cancel the 2019 final
dividend, which would have represented a cash outflow of £6.9 million in
April 2020, and the first quarter dividend for 2020. As the Group’s position
became clearer, we resumed payment of dividends from the second quarter of
2020 but continued to manage our cash tightly through 2020, whilst still
investing in working capital and our manufacturing facilities to meet the
increased demand from customers.
We continue to have a strong balance sheet with circa £91 million of
available liquidity and net debt to EBITDA of 0.32 times at 31 December 2020.
Marketplace
The Group delivered revenue growth of 17% to £233.3 million (2019: £199.9
million).
Order intake was up 20% on a reported basis to £258.0 million (2019: £214.9
million), which included £15 - £20 million of COVID-19 related
orders. Orders and revenue for 2020 represent a full year, book-to-bill
ratio of 1.11 (2019: 1.08). The Group had an order book of £124.1 million at
31 December 2020 (31 December 2019: £98.2 million), providing good visibility
for 2021.
Marketplace: Sector Dynamics
For the first time this year we have consolidated the reporting of our
Industrial and Technology sectors due to the overlap between the customer
base.
Revenue from the Industrial Technology sector declined by 19% to £94.4
million (2019: £116.6 million) and represented 40% (2019: 58%) of overall
revenue. Industrial Technology remains our largest sector, but it is very
diversified with few of these customers making it into our top 30 customer
list by revenue. Applications in this sector vary significantly and are
principally driven by new and emerging electronic technologies and high growth
niches rather than traditional areas such as industrial machinery, automotive
or mining. Typical drivers for our revenue in this sector include 3D printing,
analytical instruments, displays, industrial printing, renewable energy,
robotics, smart grid, defence and test and measurement equipment. Industrial
Technology has traditionally been a resilient, long term growth market.
Anecdotal feedback and the financial results of customers in this sector
suggests many suffered a drop in end demand due to COVID-19, particularly in
the second quarter, and were short of other parts as conditions recovered,
which meant their demand for power converters from XP Power also reduced. We
would expect to see a recovery in this sector as conditions gradually return
to normal. Our Distribution business, which represents 10% (2019: 11%) of our
overall revenue and is exposed to a very diverse range of end markets, is also
included within our Industrial Technology sector. Distribution has been a
good growth market where we have been growing market share with existing and
adding new distributors to expand geographic reach and increase our market
penetration.
Revenue from Healthcare customers grew by 51% to £69.3 million (2019: £45.9
million) representing 30% of overall revenue (2019: 23%). The demand for
Continuous Positive Airway Pressure (CPAP) machines, drug delivery systems,
hospital beds, lung X-ray applications, patient monitors, specialist
ultrasound, suction pumps, and various types of ventilators increased
significantly. By contrast other applications such as dentistry, endoscopy,
medical imaging, and robotic surgical tools showed declines compared to the
prior year as the sector focused on critical care applications for the
treatment of patients with the virus.
Healthcare remains an attractive market for XP Power given long term growth
demand dynamics, the safety critical nature of products, the breadth of our
medical product range and high level of customer service focused on blue chip
medical device manufacturers. Healthcare customers are demanding in terms of
quality and reliability, making our value proposition very attractive to them.
We provide mission critical power solutions for numerous applications in the
healthcare arena and understand the many special requirements and regulatory
approvals that a medical power solution must meet. In normal circumstances
Healthcare tends to be much less cyclical than the other sectors we address
which adds resilience to our diversified business model.
The Semiconductor Manufacturing Equipment sector remains an exciting and
important area for XP Power with excellent long-term growth prospects. Revenue
from these customers increased by 86% to £69.6 million (2019: £37.4
million). We believe we not only benefited from a cyclical recovery but also
from market share gains as a number of new programme wins, driven by
technology advances, entered production. These included, in particular,
reduced geometries in leading edge logic devices and increasing stacking in
the 3D NAND market as producers moved from 64, to 96 and to 128 layers of
memory and beyond in a single device. The critical components in the
smartphones, tablets, computers, and other electronic devices which drive our
lives are made using extremely high technology semiconductor manufacturing
tools and processes requiring numerous power conversion devices that XP Power
can provide. Revenue from the Semiconductor Manufacturing Equipment sector
customers represented 30% of overall revenue (2019: 19%). Our expansion into
Radio Frequency (“RF”) and high-voltage and high-power products, combined
with our engineering services offering, has made us an attractive supplier to
this market. The new higher power and higher voltage products we now have
allow us to service considerably more of the opportunities in this sector,
significantly expanding our addressable market which is reflected in our
robust revenue growth.
Despite the sector’s historical cyclicality this market remains highly
attractive due to its robust long term, structural growth drivers, which are
being driven by the proliferation of applications including the internet of
things (IoT), artificial intelligence (AI), autonomous vehicles, big data, and
the roll out of 5G technology, which is still in its early stages. The latest
generation of semiconductor logic and memory devices are becoming more capital
intensive to manufacture as they become multi-layered, and as dimensions
continue to shrink. This plays to XP Power’s strengths as one of the few
companies in the world that can offer the whole spectrum of power and voltage
required for semiconductor manufacture, and an ability to combine these into a
complete power solution, making us a compelling partner to the manufacturers
of these state-of-the-art tools.
Marketplace: North America
Our North America revenue was US$188.1 million in 2020 (2019: US$147.5
million), an increase of 28%. North America represented 63% of overall revenue
(2019: 58%).
Order intake in North America was US$209.8 million (2019: US$161.7 million),
an increase of 30% resulting in a healthy book-to-bill ratio of 1.12.
Marketplace: Europe
Our European revenue grew by 1% to £65.0 million (2019: £64.4 million).
While Europe benefited from significantly higher demand for critical
healthcare products it was also most impacted by the decline in the Industrial
Technology sector due to COVID-19. Europe represented 28% of overall revenues
(2019: 32%).
Order intake in Europe was £72.6 million (2019: £65.0 million), an increase
of 12%, resulting in a strong book-to-bill ratio of 1.12.
Marketplace: Asia
Asia revenue was US$26.8 million in 2020 (2019: US$25.6 million), an increase
of 5%, with strong growth in Healthcare and Semiconductor Manufacturing
Equipment offset by weakness in Industrial Technology. Our Asia business is
benefitting from new design wins with the RF and high-voltage high-power
products added to the product portfolio through the Comdel and Glassman
acquisitions. We expect these designs to contribute to revenue in 2021 and
beyond. Prior to acquisition, these companies had minimal sales representation
in Asia which presents a significant future opportunity for the Group. Asia
represented 9% of overall revenue (2019: 10%).
Order intake in Asia was US$25.7 million (2019: US$28.2 million), a decrease
of 9%, resulting in a book-to-bill ratio of 0.96.
Our Strategy and Value Proposition
Our vision is to be the first-choice power solutions provider, delivering the
ultimate experience for our customers and making XP Power a great place to
work. Over time we have gradually moved our product portfolio up the power and
voltage scale to enhance our margins and provide our customers with a broader
offering to solve their power problems. We have also increased our engineering
resource to provide enhanced engineering services capabilities, so we are able
to deliver a complete power solution to our key customers. We are now one of
very 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 application. This makes us an
extremely attractive partner to our key customers and is a key driver in our
market share gains.
We have followed a consistent strategy which has enabled us to produce strong
results over a sustained period. The fundamental essence of this strategy is
targeting key accounts where we can add value and gain more of the
customer’s available business, combined with moving the product line up in
power, voltage, and complexity. Although this strategy continues to remain
appropriate and effective, we constantly challenge and refine it, as we have
done again in 2020.
Our strategy can be summarised as follows:
* Develop a market leading range of competitive products, organically and
through selective acquisitions;
* Target accounts where we can add value;
* Increase penetration of those target accounts;
* Build a global end to end supply chain that balances high efficiency with
market leading customer responsiveness; and
* Lead our industry on environmental matters.
The challenges of managing the effects of COVID-19 have not diverted us from
our strategic path and we continue to invest for the medium and long term.
We continued to execute well against our strategy in the period, gaining
further design wins with our newer product introductions, particularly in
higher power applications, and our increased focus on engineering solutions
which provide more value to our customers. Acquisitions have been a key part
of our growth strategy expanding our product portfolio and expanding the
addressable market that we can sell into. The successful implementation of our
strategy continues to drive market share gains and the strength of our new
programme wins is encouraging despite the challenges of COVID-19. We continue
to focus our own engineering resources on high-power applications and address
the lower power applications through third party products. It was for this
reason that we took the decision in January 2020 to close our UK design centre
in Fyfield, Essex, which was focused on low-power, low voltage products. Costs
relating to the closure were £1.7 million which have been treated as
restructuring costs within specific items. These costs include the write down
of capitalised product development work of £1.2 million in progress at the
time of the site closure.
Our value proposition to customers is to solve their power problems, reduce
their overall cost of design, manufacture and operation and help them get
their product to market as quickly as possible. We achieve this by providing
excellent sales engineering support and producing new highly reliable products
that are easy to design into the customer’s system, consume less power, take
up less space and reduce installation times.
Looking forward, whilst our strategy is clearly working and adding shareholder
value, it will continue to evolve building further organisational and supply
chain agility to better serve our customers and further enhance execution. We
will also increase our focus on people and development to ensure we are able
to continue to grow our business.
Manufacturing
We completed the construction of an extension to the factory on our existing
site in Vietnam in the first quarter of 2019, adding, at a conservative
estimate, more than US$150 million of manufacturing capacity per year and
increasing our total Asian manufacturing capacity to more than US$350 million
per year. The move into Vietnam, and the subsequent capacity expansion, have
proved particularly timely given the continued deterioration in trade
relations between China and the USA. The US Government implemented Section
301 tariffs at a rate of 10% from September 2018 and increased these to 25% in
May 2019. Many of our competitors have Chinese based manufacturing
facilities which puts them at a significant commercial disadvantage if they
are selling into the USA. The ability to manufacture in Vietnam has become a
compelling value proposition to our customers wherever they are located.
The outbreak of COVID-19 further underlined the benefits of our diversified
manufacturing footprint as we were able to divert production from China to
Vietnam when COVID-19 severely disrupted supply from our Chinese factory and
supply chain in February and March 2020. Several of our customers have
subsequently accelerated their qualification processes to transfer production
from our China facility to our Vietnam facility to address the impact of
Section 301 tariffs and COVID-19. This is a compelling option for our
customers as they have become increasingly focused on the security and
certainty of supply following COVID-19.
During 2020, we invested in additional equipment in Vietnam to expand capacity
with a new surface mount line, and additional test and burn-in facilities, to
meet demand from both increased business due to COVID-19 and the transfer of
more products into Vietnam from China and our North American manufacturing
facilities, as we seek to reduce costs.
Vietnam is now qualified to produce a total of 2,616 different low voltage
products (2019: 2,080), demonstrating our progress with the transfer of
production capabilities. In addition, the transfer of low-power, high
voltage DC-DC modules, previously manufactured in Minden, Nevada, was
completed in 2020 and there are now 476 different high voltage modules capable
of being manufactured in Vietnam.
We expect this important strategic capability of having production facilities
in both Vietnam and China to enable us to win more design slots with key
customers. A number of customers have already informed us that they will no
longer design-in products manufactured in China due to concerns over China/USA
trade tensions.
Our end objective is to provide a resilient and flexible supply chain with the
capability to manufacture the majority of products in both China and Vietnam
to provide enhanced business continuity planning. We also have three
manufacturing facilities in North America. We have a customer focused
Engineering services facility in California, a site in New Jersey focused on
high voltage products and an RF focused facility in Massachusetts. These
facilities have continued to operate throughout 2020 except for short periods
where decontamination occurred following COVID-19 cases. The demand for RF
products has led to some supply shortages and we are increasing capacity to
meet the demand levels.
We monitor market dynamics closely working through our supply partners and
maintain a level of safety stocks of key components. Towards the end of the
period, we began to see supply issues for certain components and increased
safety stocks to manage through any future supply issues.
Restructuring of Low-power, High voltage Manufacturing and Transfer to Vietnam
To take advantage of our expanded Vietnam capacity, competitive labour rates
and excellent quality, in August 2019 we announced that we would be
transferring the manufacture of all our low-power, high voltage DC-DC modules
from our Nevada factory to Vietnam. We completed this transfer in 2020,
closing the Minden manufacturing facility in September. We expect that this
will result in annualised cost savings of approximately £3 million.
Approximately £1 million of these cost savings will be reinvested back into
the business to expand and strengthen our new product introduction team. The
enlarged team will facilitate further transfers of existing engineering
services production from our facility in Sunnyvale, California to Vietnam, as
well as new standard products as they are introduced, resulting in additional
future savings. We incurred £0.6 million in costs associated with the closure
of the Minden site which are included in specific items.
Research and Development
New products are fundamental to our revenue growth. The broader our product
offering, the higher the probability that we will have a product which will
work in the customer’s application with or without a modification by our
engineering team. By expanding into RF power and high voltage in 2017 and
2018, we estimate that our addressable market has increased from around US$2.7
billion to approximately US$4.7 billion.
The design-in cycles required by our customers to qualify the power converter
into their equipment and to gain the necessary safety agency approvals are
lengthy. Typically, we see a period of around 18 months, or even longer in
Healthcare, from first identifying a customer opportunity to receiving the
first production order. Revenue will then start to build from this point,
often peaking a number of years later. The positive aspect of this
characteristic is that our business has a strong annuity base where programmes
typically last five to seven years. Another aspect of this model is that the
many new products we have introduced over the last three years have yet to
make a meaningful impact on our revenue, creating a significant benefit for
future years.
We have continued to invest in research and development to further expand our
portfolio of products and the size of our addressable market opportunity. We
released 20 new product families in 2020 (2019: 32) and 17 of these can be
classified as “Green XP Power” products having ultra-high efficiency
and/or low standby power (2019: 27). We had a particularly high number of new
products introductions in 2019 from our third-party design partners,
particularly DC-DC converters.
We continue to move our product portfolio up the power and voltage scale and
away from our more traditional low-power/low voltage offering, to protect our
margins and expand our addressable market. RF power is a significant long-term
opportunity and is a market which contains many interesting and significant
niches beyond the Semiconductor Manufacturing Equipment sector including
medical equipment, induction and dielectric heating, and industrial lasers. We
have therefore directed more of our internal product development resources
away from low-power/low voltage applications and are supplementing the
low-power area with more third-party products designed to our specifications
and quality standards while expanding the RF development resources.
Engineering Solutions
As well as expanding our product offering, we have continued to expand our
engineering solutions groups, particularly in Asia and North America. As we
continue to move our capabilities up to higher power and higher voltages, we
are becoming an increasingly attractive partner for customers whose
applications are becoming more and more demanding. These demands include not
only power delivery and management, but also sophisticated connectivity
involving software and firmware which enable the customer’s application to
control the power solution and the power solution to communicate back to the
application. As the world becomes more connected and the fourth industrial
revolution gains traction, we expect this trend to gather pace. Customers
place a high value on our engineering solutions capabilities which
differentiate us from many of our competitors, who focus only on providing
standard products with little additional value added.
Our engineering solutions groups work closely with the customer’s
engineering teams to provide these customised solutions. Speed and proximity
to the customer are critical as the power solution is often one of the last
parts of the system to be designed, so is invariably one of the gating items
to get the end product to market. This is an area where XP Power adds
significant value to its customers, and we are seeing increasing demand for
these services.
We are one of the few power companies that can offer its customers a full
range of solutions across the voltage and power spectrum and provide the
engineering services to package these together to provide a complete power
solution, including communication with the customers’ application through
firmware. This is a powerful proposition which makes us an ideal partner for
many customers and greatly expands our addressable market.
Sustainability
We are acutely aware of the increasing concerns our people, customers,
suppliers, governments, and shareholders have around climate change and
sustainability issues in general. We consider that we have taken a lead in our
industry in developing and promoting high efficiency products which consume
less energy and therefore help reduce carbon emissions over their lifetime in
use. We established a Sustainability Committee as early as 2009 and set
ourselves the bold goal of becoming the leader in our industry regarding
sustainability matters. We have consistently included sustainability factors
into our decision making and have adopted environmentally responsible
practices in our facilities. In particular, we believe that our Vietnamese
production facility is the most environmentally friendly in our industry with
its efficient building envelope, building management system, water recycling
and solar panel array.
We determined many years ago that one of the biggest impacts we could have on
the environment was designing and promoting “XP Green Power” products
which consume, and therefore waste, less energy over their operational
lifetimes. This results in significant and ongoing reductions in CO(2)
emissions generated by our customers’ equipment. “XP Green Power”
products generated revenues of £52.7 million in 2020 (2019: £43.2 million)
representing 23% (2019: 22%) of total revenue.
In 2020 we engaged with our employees and key customers and suppliers to
better understand their material areas of focus and concern regarding
sustainability matters. We have also better understood the priorities of our
shareholders. The results of this engagement allowed us to build the topics
which are most important to our stakeholders into our sustainability strategy.
We were encouraged to discover that the most material interests of our
stakeholders align very closely with those of executive management. These
topics include product responsibility, attracting and retaining talent, health
and safety (incorporating occupational), employee welfare, reducing emissions,
diversity and inclusion.
We regard the continuing emphasis and concern over climate change as a
positive for our business as our customers have embraced our high efficiency
“XP Green Power” products. These products are not only significantly more
environmentally friendly due to their ongoing reduced carbon emissions but are
inherently more reliable, making them a compelling economic proposition. XP
Power is committed to continuing to lead the industry in this area. We also
believe that legislation on the efficiency requirements for power conversion
will become more and more stringent and the standards currently in place for
higher volume consumer applications, such as external power supplies, will be
extended to industrial and healthcare applications where we will be well
positioned to address this customer need. Concerns over climate change should
lead to an increasing emphasis by our customers on efficiency and more revenue
opportunities to power renewable energy systems and controllers.
We have set Company targets to reduce CO(2) emissions intensity by a minimum
of 3% per annum over the short and medium term and an aspiration to achieve
carbon neutrality by 2040. During 2021 we will develop further strategies to
bring this date forward.
Gavin
Griggs
Chief Executive Officer
Performance: Financial Review
The Group delivered excellent financial results in 2020 against the backdrop
of the unprecedented challenges of COVID-19, reflecting the resilience of the
Group and our people.
Statutory Results
Revenue was £233.3 million (2019: £199.9 million), representing growth
of 17%. Statutory operating profit was £37.4 million (2019:
£26.7 million), an increase of 40% over the prior year, with operating
margins at 16.0% (2019: 13.4%). Net finance costs were £1.7 million
(2019: £2.7 million) resulting in profit before tax of £35.7 million
(2019: £24.0 million) and an income tax expense of £4.0 million (2019:
£3.2 million), equivalent to an effective tax rate of 11%
(2019: 13%). Basic earnings per share were 163.0 pence
(2019: 107.0 pence), an increase of 52%.
Adjusted Results
Throughout this results announcement, adjusted and other alternative
performance measures are used to describe the Group’s performance. These are
not recognised under International Financial Reporting Standards (IFRS) or
other generally accepted accounting principles (GAAP).
When reviewing XP Power’s performance, the Board and management team focus
on adjusted results rather than statutory results. There are a number of items
that are included in statutory results, but which are considered to be
one-off in nature or not representative of the Group’s performance and which
are excluded from adjusted results. The tables in Note 2 show the full list of
adjustments between statutory operating profit and adjusted operating profit,
between statutory profit before tax and adjusted profit before tax, as well as
between statutory profit after tax and adjusted profit after tax at Group
level for both 2020 and 2019.
Revenue Performance
The Group’s revenue performance was driven by growth in the Semiconductor
Manufacturing Equipment sector, which increased 86% to £69.6 million (2019:
£37.4 million). The Healthcare sector grew 51% to £69.3 million (2019:
£45.9 million), which includes the COVID-19 related shipments. This was
partially offset by a decline in the Industrial Technology sector down 19% to
£94.4 million (2019: £116.6 million).
Our North American region benefited from growth in the Semiconductor
Manufacturing Equipment sector, increasing by 28% to US$188.1 million from
US$147.5 million in 2019. Europe delivered growth of 1%
to £65.0 million (2019: £64.4 million), as growth from Healthcare
customers was offset by a decrease in the Industrial Technology sector. Asia
revenue grew by 5% to US$26.8 million (2019: US$25.6 million), driven by good
growth in the Healthcare sector.
Other Income
Included in other income are £0.6 million received related to the COVID-19
pandemic, primarily from the Singaporean government as part of the Jobs
Support Scheme (JSS). The JSS was extended to all active employers in
Singapore.
Gross Profitability
Gross margin increased to 47.2% (2019: 45.1%), benefitting from production
efficiency gains at our manufacturing facilities due to the increased demand
and the transition of production from Minden to Vietnam. This more than offset
the incremental COVID-19 related costs of £0.9 million incurred by the Group
during the year, predominantly related to additional safety measures at our
manufacturing facilities.
Adjusted Operating Expenses and Margins
The Group continued to invest in the business, which resulted in adjusted
operating expenses increasing by 16% to £64.2 million. In addition to
investment in people we have also invested in our IT infrastructure,
specifically related to the ERP implementation. Due to COVID-19 travel was
severely restricted from early March leading to a decline in travel costs of
£2.0 million compared to 2019. Adjusted operating margin increased to 19.7%
(2019: 17.5%) due to volume leverage on higher revenue.
Finance Cost
Net finance cost decreased by 37% to £1.7 million (2019: £2.7 million).
The lower interest expense was a result of lower interest rates and borrowing
levels.
Adjusted Profit Before Tax
The Group generated adjusted profit before tax and specific items of
£44.3 million, an increase of 37% compared to last year.
Specific Items
In 2020, the Group incurred £8.6 million (2019: £8.3 million) of specific
items, predominantly related to £3.2 million for amortisation of intangible
assets due to business combination (2019: £3.2 million), costs associated
with acquisitions of £0.3 million (2019: £0.9 million) and ERP
implementation costs of £1.9 million (2019: £2.2 million). In addition, the
Group incurred legal costs of £0.4 million (2019: £1.9 million) related to a
non-customer related legal dispute in North America, restructuring costs of
£2.3 million (2019: £1.0 million) related to the closure of a UK design
centre and the production facility in Minden, Nevada, and fair value loss on
currency hedges of £0.5 million (2019: gain of £0.9 million).
The ERP implementation will continue through 2021 and costs related to the
project and amortisation of intangible assets due to business combinations
will continue to be classified to specific items.
Legal
On 11 September 2020, Comet Technologies USA Inc., Comet AG, and YXLON
International (collectively “Comet”) filed a lawsuit against XP Power LLC
in the U.S. District Court for the Northern District of California, alleging
trade secret misappropriation relating to RF match and generator technology
(Comet Technologies USA Inc., Comet AG, and YXLON International v. XP Power
LLC, Case No. 5:20-cv-6408 (N.D. Cal.)).
The Group believes there is no merit to this lawsuit and intends to vigorously
defend against any claims brought against us by Comet.
The Group expects to incur further legal costs until this matter is resolved,
the magnitude of which cannot currently be estimated with any certainty. The
Group incurred legal costs of £0.4 million in 2020 (2019: £1.9 million)
related to this matter which are treated as specific items and excluded from
management’s assessment of profit as they are non-repetitive and therefore
could distort the Group’s underlying earnings.
Taxation
The effective tax rate on adjusted profit before tax decreased by 210bps to
11.5% (2019: 13.6%). The lower effective tax rate was due to deductions for
employee share option awards, the utilisation of tax losses and research and
development tax credits.
The effective tax rate on statutory profit before tax decreased by 210 bps
to 11.2% (2019: 13.3%).
Going forward, XP Power expects the effective tax rate to be approximately
16-18% depending predominantly on the regional mix of profits.
Research and Development (R&D)
Gross R&D expenditure was £15.9 million, an increase of 22% on 2019 or 7% of
revenue. R&D investment is a key part of the Group’s strategy and is
expected to continue to grow as the Group expands its engineering
capabilities. The Group is particularly focused on our RF and high-power, high
voltage product development activities.
The Group capitalised £7.7 million of R&D costs (2019: £8.0 million), which
reflects the continued development of new products as the Group expands its
product portfolio.
Capital Expenditure
The Group continued to invest in its infrastructure, with particular focus on
the upgrade of our ERP system and capital investment at our manufacturing
facilities to expand capacity and improve operational performance. £7.2
million (2019: £8.3 million) was incurred on capital expenditure during 2020.
We plan to invest circa £11 million during the new financial year, with the
main investments related maintenance and expansion of our manufacturing
facilities and the upgrade of our ERP system.
Adjusted Earnings Per Share
Basic and diluted adjusted earnings per share increased by 40% to
201.8 pence and 198.4 pence respectively (2019: 144.1 pence and
141.4 pence)
Cash Flow
The Group continues to be highly cash generative with net cash from
operations of £45.6 million (2019: £46.2 million) representing cash
conversion of 122% (2019: 173%). The slightly lower level of operating cash
flows was largely a result of investing in working capital to meet the
increased demand from customers, specifically related to a £12.3 million
increase in inventory. This was partially offset by good cash collections
which saw trade and other receivables decrease by £2.7 million despite the
17% revenue increase.
Free cash flow before acquisitions, dividends and repayment of borrowings was
£31.3 million (2019: £26.2 million).
The Group finished 2020 with net debt of £17.9 million (2019: £41.3
million), comprising cash and cash equivalents of £13.9 million and gross
debt of £31.8 million. The decrease in net debt during 2020 was a result of
the strong free cash generation, offset by £7.3 million paid in dividends
during the year.
Debt Facility
The Group’s debt is sourced from a Revolving Credit Facility (“RCF”)
provided by HSBC UK Bank PLC, J.P. Morgan Securities PLC, and DBS Bank Ltd.
The Group exercised an option in the RCF agreement in October 2020 to extend
the facility expiry date by a year to November 2024. The Group also converted
US$30 million of accordion option to committed facilities, increasing the
committed facility to US$150 million (£110 million at year end exchange
rate), with a further US$30 million accordion option.
The Group is subject to two financial covenants, which are tested quarterly.
These covenants relate to the leverage ratio between adjusted EBITDA and net
debt and the interest cover ratio between adjusted EBITDA and finance costs.
Interest cover was 46 times (2019: 17 times) which is well in excess of
the four times minimum required in our banking covenant. Leverage ratio at the
year-end was comfortable at 0.32 times (2019: 0.91). The covenant level for
net debt to EBITDA is a maximum of three times.
Capital Allocation
The Group will continue its disciplined approach to capital allocation,
prioritising the maintenance of a strong balance sheet, and sufficient
committed facilities, while continuing to focus on investing in the business
to drive organic growth. The Group continues to seek out and review
acquisition opportunities that are in line with the Group’s strategy and
that meet management’s strict acquisition criteria to deliver value creation
to shareholders.
Due to the uncertainties caused by COVID-19 the Board took the difficult
decision to cancel the final dividend for 2019 and the first quarter dividend
for 2020. Dividend payments were resumed from the second quarter of 2020.
The strong finish to the year’s cash flow performance and continued good
liquidity has enabled the Board to recommend a final dividend of 36 pence
per share for the fourth quarter of 2020. This dividend will be payable to
members on the register on 26 March 2021 and will be paid on 28 April 2021.
When combined with the interim dividends for the previous three quarters, the
total dividend for the year will be 74 pence per share (2019: 55 pence).
The Group plans to operate in a range of between 1 to 2 times net debt to
Adjusted EBITDA in the medium term. Given the impact of COVID-19 on the global
economic environment the Board is comfortable with the current leverage of
0.32 in the short term.
Foreign Exchange
The Group reports its results in Sterling, but the US Dollar continues to be
our principal trading currency, with approximately 85% (2019: 83%) of our
revenues denominated in US Dollars. The average Sterling to US Dollar exchange
rate remained in line with 2019 at 1.28, meaning that constant currency
results are in line with reported results.
Johan Olivier
Acting Chief Financial Officer
XP Power Limited
Consolidated Statement of Comprehensive Income for the financial year ended 31
December 2020
£ Millions Note 2020 2019
Revenue 2 233.3 199.9
Cost of sales (123.2) (109.8)
Gross profit 110.1 90.1
Other Income 0.6 -
Expenses
Distribution and marketing (52.4) (43.2)
Administrative (5.0) (7.2)
Research and development (15.9) (13.0)
Operating profit 37.4 26.7
Finance charge (1.7) (2.7)
Profit before tax 35.7 24.0
Income tax expense 3 (4.0) (3.2)
Profit after tax 31.7 20.8
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges - (0.1)
Exchange differences on translation of foreign operations (3.6) (4.2)
(3.6) (4.3)
Items that will not be reclassified subsequently to profit or loss:
Currency translation differences arising from consolidation * (0.1)
Other comprehensive loss for the year, net of tax (3.6) (4.4)
Total comprehensive income for the year 28.1 16.4
Profit attributable to:
Equity holders of the Company 31.5 20.5
Non-controlling interests 0.2 0.3
31.7 20.8
Total comprehensive income attributable to:
Equity holders of the Company 27.9 16.2
Non-controlling interests 0.2 0.2
28.1 16.4
Earnings per share attributable to equity holders of the Company (pence per share)
- Basic earnings per share 5 163.0 107.0
- Diluted earnings per share 5 160.3 105.0
*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 2020
£ Millions Note 2020 2019
ASSETS
Current assets
Corporate tax recoverable 3.8 2.0
Cash and cash equivalents 13.9 11.2
Inventories 54.2 44.1
Trade receivables 30.2 34.8
Other current assets 4.6 3.3
Derivative financial instruments 0.3 0.6
Total current assets 107.0 96.0
Non-current assets
Goodwill 52.2 53.2
Intangible assets 46.6 46.4
Property, plant and equipment 28.4 29.3
Right-of-use assets 5.1 6.6
Deferred income tax assets 2.9 1.8
ESOP loan to employees * 0.1
Total non-current assets 135.2 137.4
Total assets 242.2 233.4
LIABILITIES
Current liabilities
Current income tax liabilities 4.9 3.1
Trade and other payables 28.2 25.2
Derivative financial instruments 0.1 -
Lease liabilities 1.5 1.6
Accrued consideration - 0.5
Total current liabilities 34.7 30.4
Non-current liabilities
Accrued consideration 1.0 1.2
Borrowings 6 31.8 52.5
Deferred income tax liabilities 6.7 5.5
Provisions 0.1 0.1
Lease liabilities 3.4 4.8
Total non-current liabilities 43.0 64.1
Total liabilities 77.7 94.5
NET ASSETS 164.5 138.9
EQUITY
Equity attributable to equity holders of the Company
Share capital 27.2 27.2
Merger reserve 0.2 0.2
Share option reserve 4.1 3.9
Treasury shares reserve (0.1) (0.5)
Translation reserve (3.8) (0.2)
Other reserve 3.6 (0.8)
Retained earnings 132.6 108.4
163.8 138.2
Non-controlling interests 0.7 0.7
TOTAL EQUITY 164.5 138.9
*Balances are 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 financial year ended 31 December 2020
Attributable to equity holders of the Company
£ Millions Share capital Share option reserve Treasury shares reserve Merger reserve Hedging reserve Translation reserve Other reserve Retained earnings Total Non- controlling interests Total equity
Balance at 1 January 2019 27.2 2.1 (1.0) 0.2 0.1 4.0 (0.8) 104.6 136.4 1.0 137.4
Exercise of share options - - 0.5 - - - - * 0.5 - 0.5
Employee share option plan expenses - 0.7 - - - - - - 0.7 - 0.7
Tax on employee share option plan expenses - 1.1 - - - - - - 1.1 - 1.1
Dividends paid - * - - - - - (16.7) (16.7) (0.5) (17.2)
Exchange difference arising from translation of financial statements of foreign operations - * - - - (4.2) - - (4.2) (0.1) (4.3)
Net change in cash flow hedges - - - - (0.1) - - - (0.1) - (0.1)
Profit for the year - - - - - - - 20.5 20.5 0.3 20.8
Total comprehensive income for the year - * - - (0.1) (4.2) - 20.5 16.2 0.2 16.4
Balance at 31 December 2019 27.2 3.9 (0.5) 0.2 - (0.2) (0.8) 108.4 138.2 0.7 138.9
Exercise of share options - (1.2) 0.4 - - - 4.3 - 3.5 - 3.5
Employee share option plan expenses - 1.5 - - - - - - 1.5 - 1.5
Tax on employee share option plan expenses - (0.1) - - - - - - (0.1) - (0.1)
Dividends paid - * - - - - - (7.3) (7.3) * (7.3)
Future acquisition of non-controlling interest - - - - - - (0.1) - (0.1) - (0.1)
Acquisition of subsidiary - - - - - - 0.2 - 0.2 (0.2) -
Exchange difference arising from translation of financial statements of foreign operations - * - - - (3.6) - * (3.6) * (3.6)
Profit for the year - - - - - - - 31.5 31.5 0.2 31.7
Total comprehensive income for the year - * - - - (3.6) - 31.5 27.9 0.2 28.1
Balance at 31 December 2020 27.2 4.1 (0.1) 0.2 - (3.8) 3.6 132.6 163.8 0.7 164.5
*Balances are 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 2020
£ Millions Note 2020 2019
Cash flows from operating activities
Profit after tax 31.7 20.8
Adjustments for:
- Income tax expense 3 4.0 3.2
- Amortisation and depreciation 14.0 12.7
- Finance charge 1.7 2.7
- Equity award charges, net of tax 1.5 0.7
- Fair value loss/(gain) of derivative financial instruments 0.5 (0.9)
- Loss on disposal of property, plant and equipment * -
- Loss on disposal of intangible assets 1.2 -
- Unrealised currency translation loss 0.2 0.9
- Provision for doubtful debts 0.4 -
Change in working capital, net of effects from acquisitions:
- Inventories (12.3) 10.3
- Trade and other receivables 2.7 (3.7)
- Trade and other payables 3.3 4.5
- Provision for liabilities and other charges * (0.5)
Cash generated from operations 48.9 50.7
Income tax paid, net of refund (3.3) (4.5)
Net cash provided by operating activities 45.6 46.2
Cash flows from investing activities
Purchases and construction of property, plant and equipment (4.0) (4.7)
Capitalisation of research and development expenditure (7.7) (8.0)
Capitalisation of intangible software and software under development (3.2) (3.6)
Proceeds from disposal of property, plant and equipment 0.1 *
Repayment of ESOP loans * *
Payment of accrued consideration (0.6) -
Net cash used in investing activities (15.4) (16.3)
Cash flows from financing activities
Repayment of borrowings (20.7) (8.8)
Principal payment of lease liabilities (1.7) (1.5)
Proceeds from exercise of share options 3.5 0.5
Interest paid (1.3) (2.7)
Dividend paid to equity holders of the Company (7.3) (16.7)
Dividend paid to non-controlling interests * (0.5)
Net cash used in financing activities (27.5) (29.7)
Net increase in cash and cash equivalents 2.7 0.2
Cash and cash equivalents at beginning of financial year 11.2 11.5
Effects of currency translation on cash and cash equivalents * (0.5)
Cash and cash equivalents at end of financial year 13.9 11.2
*Balances are less than £100,000.
The accompanying notes form an integral part of these financial statements.
Notes to the Annual Results Statement
For the year ended 31 December 2020
1. Basis of preparation
This financial information is presented in Pounds Sterling and has been
prepared using the accounting principles incorporated within International
Financial Reporting Standards (IFRS) as adopted by the European Union.
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:
Year to 31 December 2020 Year to 31 December 2019
North North
£ Millions Europe America Asia Total Europe America Asia Total
Semiconductor Manufacturing Equipment 1.2 66.6 1.8 69.6 0.4 36.6 0.4 37.4
Industrial Technology 42.8 37.4 14.2 94.4 52.0 47.7 16.9 116.6
Healthcare 21.0 43.2 5.1 69.3 12.0 31.2 2.7 45.9
Total 65.0 147.2 21.1 233.3 64.4 115.5 20.0 199.9
Revenues of £32.1 million (2019: £20.5 million) are derived from a single
external customer in the
Semiconductor Manufacturing Equipment sector.
Reconciliation of segment results to profit after tax:
£ Millions 2020 2019 (1)
Europe 18.0 16.4
North America 43.7 32.0
Asia 7.3 6.6
Segment results 69.0 55.0
Research and development (10.1) (9.4)
Manufacturing (0.3) (2.3)
Corporate cost from operating segment (12.6) (8.3)
Adjusted operating profit 46.0 35.0
Finance charge (1.7) (2.7)
Specific items (8.6) (8.3)
Profit before tax 35.7 24.0
Income tax expense (4.0) (3.2)
Profit after tax 31.7 20.8
(1) Prior year comparatives were reclassified to ensure consistency with 2020
segmental presentation and the classification of fair value adjustment on
currency hedges as a specific item.
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 on business
combinations.
In addition, the Group presents an adjusted profit after tax measure 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 after tax to adjusted profit
after tax.
(i) A reconciliation of operating profit to adjusted
operating profit is as follows:
£ Millions 2020 2019
Operating profit 37.4 26.7
Adjusted for:
Acquisition costs 0.3 0.9
Costs related to ERP implementation 1.9 2.2
Amortisation of intangible assets due to business combination 3.2 3.2
Legal costs 0.4 1.9
Restructuring costs 2.3 1.0
Fair value loss/(gain) on currency hedges 0.5 (0.9)
8.6 8.3
Adjusted operating profit 46.0 35.0
(ii) A reconciliation of profit before tax to adjusted
profit before tax is as follows:
Profit before tax (“PBT”) 35.7 24.0
Adjusted for:
Acquisition costs 0.3 0.9
Costs related to ERP implementation 1.9 2.2
Amortisation of intangible assets due to business combination 3.2 3.2
Legal costs 0.4 1.9
Restructuring costs 2.3 1.0
Fair value loss/(gain) on currency hedges 0.5 (0.9)
8.6 8.3
Adjusted PBT 44.3 32.3
(iii) A reconciliation of profit after tax to adjusted
profit after tax is as follows:
Profit after tax (“PAT”) 31.7 20.8
Adjusted for:
Acquisition costs 0.3 0.9
Costs related to ERP implementation 1.9 2.2
Amortisation of intangible assets due to business combination 3.2 3.2
Legal costs 0.4 1.9
Restructuring costs 2.3 1.0
Fair value loss/(gain) on currency hedges (2) 0.5 (0.9)
Non-recurring tax benefits (1) (1.1) (1.2)
7.5 7.1
Adjusted PAT 39.2 27.9
(1) Adjusted for tax on specific items relating to completed acquisitions of
£0.1 million (2019: £0.2 million), costs related to ERP implementation of
£0.3 million (2019: £0.4 million), legal costs of £0.1 million (2019: £0.5
million), restructuring costs of £0.5 million (2019: £0.2 million) and fair
value loss on currency hedges
of £0.1 million (2019: loss of £0.1 million)
(2) – In the current year, fair value adjustments on currency hedges are
included as a specific item as they are not considered representative of the
Group’s performance and are excluded from adjusted results. For consistency
the comparative figures have been updated to include this item.
3. Income taxes
£ Millions 2020 2019
Singapore corporation tax
- current year 4.5 2.5
- over-provision in prior financial year (0.1) (0.2)
Overseas corporation tax
- current year 0.5 0.9
- Over-provision in prior financial year (1.4) (1.0)
Withholding tax 0.1 0.2
Current income tax 3.6 2.4
Deferred income tax
- current year (0.1) 1.0
- under/(over)-provision in prior financial year 0.5 (0.2)
Income tax expense 4.0 3.2
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 2020 2019
Profit before income tax 35.7 24.0
Tax on profit at standard Singapore tax rate of 17% (2019: 17%) 6.1 4.1
Tax incentives (0.6) (0.5)
Higher rates of overseas corporation tax 0.5 0.5
Deduction for employee share options (1.2) *
Non-deductible expenditure 0.3 0.3
Non-taxable income (0.2) -
Over-provision of tax in prior financial years (1.0) (1.4)
Withholding tax 0.1 0.2
Income tax expense 4.0 3.2
4. Dividends
Amounts recognised as distributions to equity holders in the period:
2020 2019
Pence per share £ Millions Pence per share £ Millions
Prior year third quarter dividend paid 20.0* 3.8 19.0 3.6
Prior year final dividend paid 0.0* 0.0 33.0 6.3
First quarter dividend paid 0.0^ 0.0 17.0* 3.3
Second quarter dividend paid 18.0^ 3.5 18.0* 3.5
Total 38.0 7.3 87.0 16.7
* Dividends in respect of 2019 (55.0p).
^ Dividends in respect of 2020 (74.0p).
The third quarter dividend of 20.0 pence per share was paid on 15 January
2021. The proposed final dividend of 36.0 pence per share for the year ended
31 December 2020 is subject to approval by Shareholders at the Annual General
Meeting scheduled for 20 April 2021 and has not been included as a liability
in these financial statements. It is proposed that the final dividend be paid
on 28 April 2021 to members on the register as at 26 March 2021.
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:
2020 2019
£ Millions
Earnings
Earnings for the purposes of basic and diluted earnings per share (profit attributable to equity holders of the Company) 31.5 20.5
Earnings for earnings per share 31.5 20.5
Number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands) 19,326 19,154
Effect of potentially dilutive share options (thousands) 327 368
Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 19,653 19,522
Earnings per share from operations
Basic 163.0p 107.0p
Basic adjusted* 201.8p 144.1p
Diluted 160.3p 105.0p
Diluted adjusted * 198.4p 141.4p
*Reconciliation to compute the adjusted earnings from operations is as per
below:
£ Millions
Earnings for the purposes of basic and diluted earnings per share
(profit attributable to equity holders of the Company) 31.5 20.5
Amortisation of intangible assets due to business combination 3.2 3.2
Acquisition costs 0.3 0.9
Non-recurring tax benefits (1.1) (1.2)
Costs related to ERP implementation 1.9 2.2
Legal costs 0.4 1.9
Restructuring costs 2.3 1.0
Fair value loss/(gain) on currency hedges 0.5 (0.9)
Adjusted earnings 39.0 27.6
6. Borrowings
The Group’s debt is sourced from a Revolving Credit Facility (“RCF”)
provided by HSBC UK Bank PLC, J.P. Morgan Securities PLC, and DBS Bank Ltd.
The Group’s exercised an option in the RCF agreement in October 2020 to
extend the facility expiry date by a year to November 2024. The Group also
converted US$30 million of accordion to committed facilities, increasing the
facility to US$150 million, with a further US$30 million accordion option. The
facility has no fixed repayment terms until maturity. The revolving loan is
priced at US LIBOR plus a margin of 1.0% - 1.2% for the utilisation facility
and a margin of 0.4% - 0.5% for the unutilised facility.
The borrowings are repayable as follows:
£ Millions 2020 2019
On demand or within one year - -
In the second year - -
In the third year - -
In the fourth year 31.8 52.5
Total 31.8 52.5
Management assessed all loan covenants have been complied with as at 31
December 2020.
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.
COVID-19
Our existing business continuity plans across the world had identified a
pandemic as a potential material event and appropriate disaster recovery plans
were already in place before COVID-19 started to affect our Chinese facility
in January 2020. The disaster recovery plan was immediately implemented with
the key objectives of ensuring the safety and wellbeing of all our colleagues;
keeping our customers supplied with product (particularly those providing
critical healthcare equipment for the treatment of COVID-19 patients); and
preserving cash and maintaining liquidity. We were able to execute the
disaster recovery plans with great success including a review of learnings to
enhance our response to the next pandemic or other potential disruptive event.
An event that causes a disruption to one of our manufacturing facilities
An event that results in the temporary or permanent loss of a manufacturing
facility would be a serious issue. As the Group manufactures approximately 80%
of revenues, this would undoubtedly cause at least a short-term loss of
revenues and profits and disruption to our customers and therefore damage to
reputation.
Risk mitigation – We now have two facilities (China and Vietnam) where we
are able to manufacture the majority of our power converters and we have
disaster recovery plans in place for both facilities. However, not all power
converter series can be produced in 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 then
identified and implemented actions to reduce or mitigate these risks where
possible.
Fluctuations of revenues, expenses, and operating results due to an economic
downturn or external shock
The revenues, expenses and operating results of the Group could vary
significantly from period to period because of a variety of factors, some of
which are outside its control. These factors include general economic
conditions; adverse movements in interest rates; conditions specific to the
market; seasonal trends in revenues, capital expenditure and other costs; and
the introduction of new products or services by the Group, or by their
competitors. In response to a changing competitive environment, the Group may
elect from time to time to make certain pricing, service, marketing decisions
or acquisitions that could have a short-term material adverse effect on the
Group’s revenues, results of operations and financial condition.
Risk mitigation – Although not immune from an economic shock or the
cyclicality of the capital equipment markets, the Group’s diverse customer
base, geographic spread and revenue annuities reduces exposure to this risk.
The Group’s business model is not capital intensive and the strong profit
margins lead to healthy cash generation which also helps mitigate risks from
these external factors.
The Group benefits from good order exposure 12 months out allowing it to
recognise market changes and mitigate the impact.
Risk associated with Supply Chain
The Group is dependent on retaining its key suppliers and on their ability to
meet their obligations to the Group. Supply chain may also be affected by
external events, such as the impact on our Chinese supply chain of the
outbreak of the COVID-19 virus.
Risk Mitigation - We conduct regular audits of our key suppliers and in
addition keep large amounts of safety inventory of key components, which we
also regularly review. We also dual source our components where possible to
minimise dependency on any single supplier.
Cyber-security/Information systems failure
The Group is reliant on information technology in multiple aspects of the
business from communications to data storage. Assets accessible online are
potentially vulnerable to theft and customer channels are vulnerable to
disruption. Any failure or downtime of these systems or any data theft could
have a significant adverse impact on the Group’s reputation or on the
results of operations.
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.
A cyber assessment carried out by the outsourced internal auditor resulted in
recommendations that are being implemented to further mitigate cyber risk and
safeguard the Group’s assets.
Dependence on key customers
The Group is dependent on retaining its key customers. Should the Group lose a
number of its key customers or key suppliers, this could have a material
impact on the Group’s financial condition and results of operations.
However, for the year ended 31 December 2020, no single customer accounted for
more than 14% of revenue.
Risk mitigation – The Group mitigates this risk by providing excellent
service. Customer complaints and non-conformances are reviewed monthly by
members of the Executive Leadership team.
Product recall
A product recall due to a quality or safety issue would have serious
repercussions to the business in terms of potential cost and reputational
damage as a supplier to critical systems.
Risk mitigation – We perform 100% functional testing on all own-manufactured
products and 100% hi-pot testing, which determines the adequacy of electrical
insulation, on own-manufactured products. This ensures the integrity of the
isolation barrier between the mains supply and the end user of the equipment.
We also test all the medical products we manufacture to ensure the leakage
current is within the medical specifications.
Where we have contracts with customers, we always limit our contractual
liability regarding recall costs.
Competition from new market entrants and new technologies
The power supply market is diverse and competitive. The Directors believe that
the development of new technologies could give rise to significant new
competition to the Group, which may have a material effect on its business. At
the lower end of the Group’s target market, in terms of both power range and
programme size, the barriers to entry are lower and there is, therefore, a
risk that competition could quickly increase, particularly from emerging
low-cost manufacturers in Asia.
Risk mitigation – The Group reviews activities of its competition, in
particular product releases, and stays up to date with new technological
advances in our industry, especially those relating to new components and
materials. The Group also tries to keep its cost base competitive by operating
in low-cost geographies where appropriate.
The general direction of our product roadmap is to move away from lower
complexity products and to increase our engineering solutions capabilities so
reducing the inherent market competitiveness.
Risks relating to regulation, compliance and taxation
The Group operates in multiple jurisdictions with applicable trade and tax
regulations that vary. Failing to comply with local regulations or a change in
legislation could impact the profits of the Group. In addition, the effective
tax rate of the Group is affected by where its profits fall geographically.
The Group’s effective tax rate could therefore fluctuate over time and have
an impact on earnings and potentially its share price.
Risk mitigation – An outsourced internal audit function has been introduced
to provide risk assurance in targeted areas of the business and
recommendations for improvement. The scope of these reviews includes
behaviour, culture, and ethics.
The Group hires employees with relevant skills and uses external advisers to
keep up to date with changes in regulations and to remain compliant.
As the proportion of our own-manufactured products has increased, the reliance
on suppliers for third party product has been mitigated proportionally. There
has been a shift from a finished goods risk to a raw materials risk.
Risk Mitigation - We conduct regular audits of our key suppliers and in
addition keep large amounts of safety inventory of key components, which we
also regularly review. We also dual source our components where possible to
minimise dependency on any single supplier.
Strategic risk associated with valuing or integrating new acquisitions
The Group may elect from time to time to make strategic acquisitions. A degree
of uncertainty exists in valuation and in particular in evaluating potential
synergies. Post-acquisition risks arise in the form of change of control and
integration challenges. Any of these could influence the Group’s revenues,
results of operations and financial condition.
Risk mitigation – Preparation of robust business plans and cash projections
with sensitivity analysis and the help of professional advisers if
appropriate.
Post-acquisition reviews are performed to extract “lessons learned”.
Exposure to exchange rate fluctuations
The Group deals in many currencies for both its purchases and sales including
US Dollars, Euro, and its reporting currency Pounds Sterling. In particular,
North America represents an important geographic market for the Group where
virtually all the revenues are denominated in US Dollars. The Group also
sources components in US Dollars and the Chinese Yuan. The Group therefore has
an exposure to foreign currency fluctuations. This could lead to material
adverse movements in reported earnings.
Risk mitigation – The Group reviews balance sheet and cash flow currency
exposures and where considered appropriate, uses forward exchange contracts to
hedge these exposures.
The Group does not hedge any translation of its subsidiaries’ results to
Sterling for reporting purposes.
Loss of key personnel or failure to attract new personnel
The future success of the Group is substantially dependent on the continued
services and continuing contributions of its Directors, senior management, and
other key personnel. The loss of the services of key employees could have a
material adverse effect on own business.
Risk mitigation – The Group undertakes performance evaluations and reviews
to help it stay close to its key personnel as well as annual employee
engagement surveys. Where considered appropriate, the Group also makes use of
financial retention tools such as equity awards.
8. Responsibility Statement
The Directors confirm to the best of their knowledge and believe that this
condensed set of financial statements:
- Gives a fair view of the assets, liabilities, financial position, and profit
of the Group; and
- Includes a fair review of the information required by the Disclosure and
Transparency Rules.
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 401 Commonwealth Drive, Lobby B, #02-02, Haw Par Technocentre,
Singapore 149598.
The financial information set out in this announcement does not constitute the
Company’s statutory accounts for the years ended 31 December 2019 or 2020.
The financial information for the year ended 31 December 2019 is derived from
the XP Power Limited statutory accounts for the year ended 31 December 2019,
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 2020 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 International Financial Reporting Standards
(IFRS) as adopted by the European Union, this announcement does not itself
contain sufficient information to comply with IFRS as adopted by the European
Union. The Company expects to publish full financial statements that comply
with IFRS as adopted by the European Union later this month.
This announcement was approved by the Directors on 2 March 2021.
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