REG-XP Power Ltd: Annual Results for the year ended 31 December 2021
01/03/2022 07:15
1 March 2022
XP Power Limited
(“XP Power” or “the Group” or the “Company”)
Annual Results for the year ended 31 December 2021
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 2021.
Year ended 31 December 2021 Year ended 31 December 2020 % change actual exchange rates % change constant exchange rates
Order intake £343.4m £258.0m 33% 43%
Revenue £240.3m £233.3m 3% 10%
Gross margin 45.1% 47.2% (210)bps (200)bps
Final dividend per share 36.0p 36.0p -
Total dividend per share 94.0p 74.0p 27%
Adjusted
Adjusted operating profit (1) £45.1m £46.0m (2)% 5%
Adjusted profit before tax (1) £43.8m £44.3m (1)% 7%
Adjusted diluted earnings per share (1) 176.3p 198.4p (11)%
Reported
Operating profit £29.7m £37.4m (21)% (14)%
Profit before tax £28.4m £35.7m (20)% (13)%
Diluted earnings per share 113.8p 160.3p (29)%
Operating cash flow £36.4m £45.6m (20)%
Net debt £24.6m £17.9m 37%
(1)For details on adjusted measures refer to note 2 of the consolidated
financial statements.
· Order intake increased by 33% to £343.4 million driven by all three
sectors – continued momentum in the Semiconductor Manufacturing Equipment
sector, a strong recovery in Industrial Technology and normalisation of demand
from our Healthcare customers following the exceptional COVID-19-related
demand in 2020
· Product supply to customers maintained despite COVID-19 lockdowns,
component shortages and logistics challenges, underlining the Group’s
resilience and supply chain flexibility
· Reported revenue grew 3% to £240.3 million and 10% on a constant
currency basis, compared to a strong 2020 comparator which included an
estimated £15 - £20 million benefit related to exceptional COVID-19
Healthcare shipments
· Gross margin decreased by 210bps to 45.1% with H1 gross margin 46.6%
reducing to 43.5% in H2 as a result of increased freight costs due to higher
utilisation of air freight and temporary higher production costs incurred at
our Vietnam factory as it continued to operate during the national COVID-19
lockdown.
· Adjusted profit before tax of £43.8 million has grown 7% on a
constant currency basis (down 1% as reported) with statutory operating profit
21% below the prior year. The key difference between adjusted and statutory
results being the costs associated with the ongoing legal case in North
America
· Net debt of £24.6 million an increase of 37% compared to 2020, with
another year of strong underlying cash generation despite supply chain
challenges and certain non-recurring costs
· Proposed final dividend for 2021 of 36 pence per share (2020: 36
pence per share). Total dividend for 2021 94 pence per share (2020: 74 pence
per share).
The Group enters 2022 with a record order book of £217.0 million (2020:
£124.1 million), representing c.80% of analyst consensus 2022 revenue
including impact from acquisitions as at 25 February 2022.
James Peters, Chair, commented:
“Our clear strategy and strong execution has helped us navigate well through
what have been challenging markets of recent years, with 2021 being no
exception. The strength of our results is testament to the business resilience
and the efforts and dedication of our people and business partners and I would
like to put on record my thanks to all of them. Despite the challenges we
delivered record constant currency orders and revenues in 2021, while
maintaining strong cash generation. The Group also continued to invest in
people, product and systems during the year, and this provides the platform
for further growth in 2022 and beyond. The new financial year has started
positively with our record order book offering greater visibility than
normal.”
Enquiries:
XP Power
Gavin Griggs, Chief Executive
Officer
+44 (0)118 976 5155
Oskar Zahn, 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 38% of
sales), Healthcare (circa 23% sales) and Semiconductor Manufacturing Equipment
(circa 39% 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
Chair’s Statement
Our Progress in 2021
We made further strategic progress in 2021 and have produced a robust set of
results in what continued to be a difficult global environment characterised
by ongoing challenges resulting from COVID-19. A key priority since the start
of the pandemic has been to protect the health and wellbeing of our colleagues
and we continued this focus as we navigated the issues we faced in 2021.
These impacts were compounded by the global supply chain challenges and
component shortages faced by our industry worldwide, particularly in the
fourth quarter. I would like to thank all colleagues for their ongoing
commitment and adaptability during this difficult period.
The clear highlight of the year was our record order book which underlines the
strength of demand for XP Power’s products. Revenues were above those
achieved for 2020 and we delivered robust profitability and strong cash
conversion despite the difficult global backdrop.
We saw continued momentum in the Semiconductor Manufacturing Equipment sector,
a recovery in Industrial Technology from the impact of the pandemic shutdowns
in 2020 and a normalisation of demand in Healthcare as customers re-focused on
innovation after the COVID-19 related spike in demand for critical care
equipment demand during 2020.
Our strong cash generation and confidence in the Group’s long-term prospects
supported the continuation of our progressive dividend policy throughout 2021.
The Board is proposing a final dividend of 36p for 2021 (2020: 36p) which
would, if approved by shareholders, bring the total 2021 dividend per share to
94p (2020: 74p).
Our Board
In January 2021 Gavin Griggs succeeded Duncan Penny as Chief Executive Officer
and in May 2021 Oskar Zahn joined as Chief Financial Officer. The new senior
team, supported by the strong Executive Leadership team we have throughout the
business, have navigated successfully through a challenging period. We have
confidence that under the new leadership the Group will deliver further growth
in shareholder value.
After almost 35 years with the Group, and with XP Power performing well, I
believe the time is right to begin implementing our succession plans for the
position of Board Chair. I am delighted that Jamie Pike also the Chair of
Spirax-Sarco Engineering plc, is joining the Board in March 2022 as
Non-Executive Director and Chair designate and I look forward to working
closely with him in the period until I retire from the Board, which is
currently planned to be on or before the date of the AGM in 2023.
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 engage with the Executive
Leadership Team and colleagues throughout the Group to ensure we are
continuing to identify and develop our key people and bringing new talent and
capabilities into the business to help underpin our growth ambitions. We made
a number of important hires in engineering, manufacturing and product
management during the year as we look to further enhance our capabilities in
these critical areas and to support the growth ambitions we have for the
Group.
I am proud of what our people have achieved in 2021 and I know from our
engagement with them that they are proud to be part of the XP Power team.
Sustainability
Sustainability has been a long-term focus for XP Power and we are committed to
reducing our environmental footprint and in 2021 our progress was recognised
by ASM, a key customer, when we received its inaugural PRISM award, for
sustainability. 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 the focus has
been on building on our platform to ensure sustainability is fully embedded in
XP Power. We have re-launched our Sustainability Council reinforcing our
internal sustainability structure. The Board and senior management have
undertaken sustainability training to raise our internal capability and
develop the next stage of our strategy.
Strategy Review
The Group has consistently executed a clear strategy which has successfully
delivered meaningful value creation for all stakeholders and this focus
continued through 2021.
We recently completed our annual review of our strategy which confirmed it
remains appropriate. We continue to evolve individual elements to improve
their effectiveness and to ensure it takes account of changes in the operating
environment. Today, we are one of a few power companies in the world with
the breadth of product portfolio across power and voltage spectrum. We
remain focused on growth, both organically and inorganically, and despite many
years of strong performance we still have relatively low market shares in the
markets we operate in and the sectors we focus on. Going forward we will use
our product portfolio and engineering services capabilities to provide
customers with power solutions and continue to increase our market share.
Our strategy continues to deliver sustainable long-term earnings growth
through revenue growth and market share gains in our target sectors and
customers. This success is demonstrated by our consistent performance and
resilience over the cycle 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 backlog and pipeline, to continue to
deliver organic growth.
The Group’s strong financial liquidity ensures we have sufficient resources
to support targeted acquisitions to enhance our product portfolio and expand
our addressable market. We completed the acquisition of two German based High
Voltage businesses in January 2022. They are highly complementary to our
existing high voltage portfolio and significantly enhance our capabilities in
this attractive area. We will continue to maintain a highly disciplined
approach to acquisitions ensuring targets enhance our existing portfolio and
will complement our organic growth.
Outlook
We delivered a robust performance in 2021 despite facing significant external
challenges, particularly in the second half, demonstrating, once again, the
resilience of our business model and quality of our people.
For 2022, despite the ongoing challenges and uncertainty that remain in
relation to our supply chain, component shortages and inflationary pressures,
the record order book and the positive demand backdrop, across all our
sectors, provides us with confidence for our prospects. We remain excited
about our longer-term outlook.
James Peters
Chair
Performance: Operational Review
Review of our year
The Group delivered a robust performance in a year in which the ongoing
challenges brought about by COVID-19 were compounded by component shortages
and disruption to global logistics. All of our facilities continued to
operate throughout the period while ensuring the safety and wellbeing of our
people and we made good strategic progress despite the challenges of
navigating through the COVID-19 pandemic. We have continued to invest in the
business through this challenging period, adding capacity, developing new
products and increasing our global workforce. Our success is down to the
tenacity and commitment of the XP Power team globally.
The Semiconductor Manufacturing Equipment sector performed strongly throughout
2021. The performance was underpinned by a combination of increased end market
demand and our market share gains from design wins on new tools. These ongoing
design wins are being supported by the development of closer relationships
with our customers. The Industrial Technology sector experienced a healthy
rebound, beginning in early 2021, driven by pent-up demand following the 2020
slowdown linked to the pandemic. Demand from our Healthcare customers
normalised as they switched from critical care equipment used to treat
patients with COVID-19 to more normal demand patterns, supporting product
innovation. While Healthcare demand was below the exceptional levels seen in
2020 it was comfortably ahead of 2019. Demand across all sectors was strong
and this, combined with the lengthening of lead times in supply chains, has
resulted in our order book being at record levels as we entered 2022.
Our diversified manufacturing footprint and supply chain is recognised as an
important strategic differentiator by our key customers, many of whom are
otherwise concerned about USA/China trade relations and general supply chain
resiliency. In the last couple of years we have been able to demonstrate this
resilience with product shipments continuing in very challenging conditions.
Continuing shipments to customers were the priority. As an example, during
2020, our Vietnam facility allowed us to maintain product supply to our
customers while production at our Chinese factory was impacted by COVID-19
restrictions imposed by the Chinese government. In H2 2021, Vietnam
experienced a surge in COVID-19 infections and enforced its own strict
lockdown. Our Vietnam facility was allowed to continue operating through this
period but at reduced levels of throughput as the number of employees on site
was reduced by circa 50%, and as we faced the peak period of component
challenges. During this period, we were able to flex our supply chain and
increased production in China.
Global supply chains came under significant additional pressure in 2021 and
this impacted both our financial performance for the year but also the service
we could provide to our customers. Many components have been in short supply
as the COVID-19 restrictions limited production and as demand spiked as the
global economy re-opened. Semiconductors were the first components to be
impacted and saw the most severe availability gaps. Supply issues and
material shortages also impacted other components critical to the manufacture
of XP Power’s products. These included standard components such as
multilayer ceramic capacitors (MLCC), transistors, diodes and resistors. While
our strong supplier relationships and higher levels of “safety stocks”
ensured we were able to limit the impact, increasing lead times and shortages
in the second half reduced our potential revenue and profits for the year.
We are managing the situation proactively; we have redesigned some products
where shortages have been significant and we continue to pay premiums to
market prices to secure and expedite supply. Supply of some components
remains tight, driven by inventory depletion through multiple layers in the
supply chain which is creating volatility in supply and lead times. We expect
this situation to continue during the first half of 2022.
A second supply chain challenge we faced related to global logistics. With air
travel below pre-pandemic levels and challenges around port handling during
the pandemic, both air and sea freight have had tight supply leading to
increased transit times and significant cost increases. Following the end of
COVID-19 restrictions in Q4 2021, production from our Vietnam facility ramped
back up to previous levels to fulfil the pent-up customer demand. We also
shipped a higher proportion of product by air rather than by ocean freight to
meet customer commitments, which was our priority. This resulted in
significantly higher freight costs in this period but we expect these to
normalise in H1 2022.
During 2021 we continued to develop our Enterprise Resource Planning (ERP)
system despite the global travel restrictions. We plan to deploy the second
phase of this project within our supply chain and at our Asian manufacturing
sites in the first half of 2022. This project has been slightly delayed due
to COVID-19 restrictions, but its deployment, de-risked by the first phase
roll-out, will further strengthen our supply chain and improve efficiency.
Expansion of our product portfolio by acquisition remains an important element
of our growth strategy. Subsequent to the year-end we were delighted to
complete the acquisitions of FuG Elektronik GmbH (FuG) and Guth High Voltage
GmbH (Guth), for circa £32.8m. They are two complementary German businesses
operating in the high voltage market segment. The acquisitions strengthen
our position in the important German market, adding speciality high voltage
capabilities one near Munich and the other near Stuttgart. The acquired
businesses are an excellent fit with our existing operations, adding wholly
new and highly complementary product portfolios and technical capabilities to
the Group. We expect to grow the acquired businesses’ revenues significantly
by selling FuG and Guth’s products through our existing industry leading
sales teams and distribution network. It also allows us to access new areas
within the important Industrial Technology and Semiconductor manufacturing
sectors.
Balance sheet and liquidity
The Group benefits from strong financial liquidity with significant
flexibility to invest to support organic growth, and to increase inventory and
working capital to adapt to the higher levels of demand and uncertainty in the
supply chain.
Our balance sheet remains strong, with circa £77 million of available
liquidity and net debt to EBITDA of 0.44 times as at 31 December 2021.
As mentioned above, on 31 January 2022, XP Power completed the acquisition of
FuG and Guth
from Dr Simon Consulting GmbH for a cash consideration of €39.0 million.
Marketplace
The Group delivered revenue growth of 3% in 2021 with revenue of £240.3
million (2020: £233.3 million) or 10% growth at constant currency.
Order intake was up 33% on a reported basis to £343.4 million (2020: £258.0
million which included £15 - £20 million of COVID-19 related
orders). Orders and revenue for 2021 represent a full year, book-to-bill
ratio of 1.43 (2020: 1.11). The Group had a record order book of £217.0
million on 31 December 2021 (31 December 2020: £124.1 million), providing
excellent visibility for 2022 and underpinning prospects for the year.
Marketplace: Sector Dynamics
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 34% to £93.3 million (2020: £69.6 million)
or 46% growth at constant currency. We believe we not only benefited from
ongoing demand but also from market share gains as a number of new programme
wins, driven by technology advances, entered production. Revenue from
Semiconductor Manufacturing Equipment sector customers represented 39% of
overall revenue (2020: 30%). Our Radio Frequency (“RF”) and high-voltage
and high-power products, combined with our low voltage portfolio and
engineering services offering, has made us an attractive supplier to this
market. The new higher power and higher voltage products we now offer allow us
to service considerably more of the opportunities in this sector,
significantly expanding our addressable market. The recent acquisitions of FuG
and Guth further strengthen our position in this market adding access to new
sub sectors including lithography.
Investment in semiconductor manufacturing capacity is growing rapidly
worldwide as the industry responds to a structural supply shortage and to meet
demand for ever more technologically sophisticated semiconductors. Demand for
semiconductor manufacturing equipment remains strong and Wafer Fabrication
Equipment (WFE) capex grew by c.40% in 2021, with further growth forecast in
2022. In total there were c.59 new semiconductor manufacturing facilities
announced in 2021 with WFE spend of $300 billion expected in the next few
years. 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. Our two largest
customers operate within this sector and we are growing revenues with both of
them, as well as diversifying into a wider global customer base.
Revenue from the Industrial Technology sector increased by 3% on a constant
currency basis (declined by 3% as reported) to £92.0 million (2020: £94.4
million) and represented 38% (2020: 40%) of overall revenue. Demand in
Industrial Technology remains robust, with supply chain challenges having a
major impact during 2021. The sector is extremely 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 of our revenue in this sector include analytical instruments, test and
measurement equipment, robotics, displays, industrial printing, renewable
energy, and smart grid. Industrial Technology is a resilient, highly
diversified, long term growth market for XP Power with innovation a key driver
of growth. Our Distribution business, which represents 10% (2020: 10%) 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 remained
an attractive growth market where we have been increasing market share with
existing customers and adding new distributors to expand geographic reach and
increase our market penetration to small and mid-tier customers.
Revenue from Healthcare customers declined 15% at constant currency (down by
21% as reported) to £55.0 million (2020: £69.3 million) representing 23% of
overall revenue (2020: 30%). In 2020 we experienced exceptional demand of
£15-20 million directly related to the COVID-19 pandemic and other
applications were down significantly. In 2021, demand for critical care
products has normalised and we have seen a recovery in our growth markets such
as robotic surgical tools, dentistry, endoscopy and medical imaging, and we
are working with a number of customers on innovative solutions to challenges
they are facing. We have delivered ongoing growth after adjusting for the
one-off impact in 2020. Healthcare remains an attractive market for XP Power
given the long term demand growth dynamics, the safety critical nature of
products, the breadth of our medical product range and the high level of
customer service required by 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.
Marketplace: North America
Our North America revenue was US$194.5 million in 2021 (2020: US$180.4
million), an increase of 8%. North America represented 59% of overall revenue
(2020: 61%).
Order intake in North America was US$270.2 million (2020: US$194.5 million),
an increase of 39% resulting in a healthy book-to-bill ratio of 1.38.
Marketplace: Europe
Our European revenue grew by 3% to £67.3 million (2020: £65.6 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
(2020: 28%).
Order intake in Europe was £93.1 million (2020: £73.7 million), an increase
of 26%, resulting in a strong book-to-bill ratio of 1.38.
Marketplace: Asia
Asian revenues were US$43.8 million (2020: US$33.8 million), an increase of
30%, with strong growth in Healthcare and Semiconductor Manufacturing
Equipment, offset by weakness in Industrial Technology. Asia represented 13%
of overall revenue (2020: 11%). Our Asia business is benefitting from new
design wins with the RF and high-voltage product portfolios. We expect these
design wins to contribute to revenue in 2022 and beyond as they enter
production.
Order intake in Asia was US$74.8 million (2020: US$39.6 million), an increase
of 89%, resulting in a book-to-bill ratio of 1.71.
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 expanded 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 added 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 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 of our
market share gains.
We have followed a consistent strategy which has enabled us to produce strong
results over a sustained period. The fundamental element 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 so again in 2021.
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 industry wide challenges we have faced in recent years have not diverted
us from our strategic path and we continue to invest for the medium and long
term in new product development, new capabilities and capacity. 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 through our increased focus on engineering solutions.
Acquisitions have been a key part of our growth strategy expanding our product
portfolio and addressable market. The FuG and Guth acquisitions completed in
January 2022 are the latest examples of this strategy in action.
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 effective 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
XP Power’s main production facilities are located in China and Vietnam. We
proactively manage the sites to optimise our supply chain and provide
resilience of supply for our customers. Our total Asian manufacturing
capacity is more than US$350 million per year. During 2021, 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 our current and
future levels of demand and to support the transfer of more products into
Vietnam from China and our North American manufacturing facilities, as we seek
to benefit from lower production costs and increase supply chain resilience
and flexibility.
Vietnam is now qualified to produce a total of 2,708 different low voltage
products (2020: 2,616), with the ongoing transfer of production
capabilities. In addition, the factory is now qualified on 810 different
high voltage modules and we are increasing the number of customer solution
products that are capable of being manufactured in Vietnam.
The dual supply capability has benefited our customers through the COVID-19
pandemic and also as they seek to navigate changes 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 which
remains in place. The ability to manufacture in Vietnam has become a
compelling value proposition to our customers wherever they are located. 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 irrespective of the tariff situation. 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. The benefit of
dual supply has been highlighted as China was in lockdown in 2020 and then
Vietnam in 2021, and we were able to effectively redirect production to
maintain a continuity of supply for our customers.
As the business continues to grow, we will require further production capacity
and we will commence construction of a new manufacturing facility in North
West Malaysia in 2022 to increase capacity to meet the demand from across the
Group. We expect to commission this new facility in 2023. Our overall
objective is to provide a resilient and flexible supply chain with the
capability to manufacture the majority of products in China, Vietnam and the
new third location to provide enhanced business continuity planning. The
increased level of capital expenditure that the Group will incur during the
construction will be phased in line with the facility and this will initially
be spread across 2022 and 2023.
We also have three smaller, more technically specialist manufacturing
facilities in North America. These include 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 2021 except for short periods where
decontamination was required following COVID-19 cases. High demand for RF and
HV products has led to some supply challenges 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. Throughout the year, we
have seen significant supply issues for certain components and increased
safety stocks to manage through any future supply issues although this became
increasingly challenging in H2 2021. We have also designed out some
particularly problematic components using our engineering team. While the
level of shortages has peaked and has since reduced, we do expect some ongoing
issues in 2022.
Research and Development
New products are fundamental to our longer term 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 in 2017 and high voltage
in 2018 and 2022, we estimate that our addressable market has increased from
around US$2.7 billion to approximately US$6.0 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, 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 as they enter
production.
We continue to move our product portfolio up the power and voltage scale and
away from our historic low-power/low voltage offering, to protect our margins
and expand our addressable market. RF power is a 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 and we are expanding
our RF development resources. In tandem, we have directed more of our internal
product development resources away from low-power/low voltage applications and
are servicing demand in the low-power segment with more third-party products
designed to our specifications and quality standards.
Engineering Solutions
As well as growing 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 enables 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.
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 it 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 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 incorporated 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 £36.2 million in 2021, which was broadly in
line with last year and represented 15% of total revenue.
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.
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 endeavoured to better understand 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 the executive
management. These topics include product responsibility, attracting and
retaining talent, health and safety, employee welfare, reducing emissions,
diversity and inclusion.
We are committed to the long-term sustainable success of XP Power in all its
aspects. In 2021 we started the end-to-end mapping of our business including
Scope 1, 2 and 3 emissions and are committed to a proactive strategy to reduce
these in absolute terms. We plan to complete this exercise in 2022.
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 2022 we will develop further strategies to
bring this date forward.
Gavin
Griggs
Chief Executive Officer
Performance: Financial Review
The Group has delivered another robust performance in 2021 against the
backdrop of continued COVID-19 restrictions and the resulting impact on supply
chain capacity.
Statutory Results
Revenue was £240.3 million (2020: £233.3 million), representing growth of
10% at constant currency (3% on a reported basis). Statutory operating profit
was £29.7 million (2020: £37.4 million), a decrease of 14% at constant
currency (21% as reported) compared to the prior year, with operating margins
at 12.4% (2020: 16.0%). Net finance costs were £1.3 million (2020: £1.7
million), resulting in profit before tax of £28.4 million (2020: £35.7
million) and an income tax expense of £5.4 million (2020: £4.0 million)
equivalent to an effective tax rate of 19.0% (2020: 11.2%). Basic earnings per
share were 115.8 pence (2020: 163.0 pence), a decrease of 29%.
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 small number of
items that are included in statutory results that are one-off in nature or not
representative of the Group’s performance, so they 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, and between
statutory profit after tax and adjusted profit after tax at Group level for
both 2021 and 2020.
Revenue Performance
The Group’s revenue performance was primarily driven by growth in the
Semiconductor Manufacturing Equipment sector, which increased 46% at constant
currency (34% as reported) to £93.3 million (2020: £69.6 million). This was
offset by the Healthcare sector which was, as expected, down 15% at constant
currency (21% as reported) to £55.0 million (2020: £69.3 million) as the
one-off benefit of £15-£20m of equipment sales directly linked to COVID-19
in 2020 was not repeated. Encouragingly, demand for critical care product has
normalised and we have seen a recovery in our more traditional markets. The
Industrial Technology sector increased by 3% at constant currency but declined
3% as reported to £92.0 million (2020: £94.4 million) as it was constrained
by supply chain challenges.
Our North America region continued to benefit from the growth in demand for
Semiconductor Manufacturing Equipment, increasing revenue by 8% to US$194.6
million from US$180.4 million in 2021. This growth was despite not seeing the
repeat of the sales directly linked to COVID-19 which was predominantly in
North America in 2020. Europe delivered growth of 3% to £67.3 million (2020:
£65.6 million), as growth from Semiconductor Manufacturing and Industrial
Technology sectors was offset by a small decrease in the Healthcare sector.
Asia revenue grew by 30% to US$43.8 million (2020: US$33.8 million), driven by
continued growth in the Semiconductor Manufacturing Equipment sector. Asia now
contributes 13.2% of Group revenues (2020: 11.4%).
Gross Profitability
Gross margin decreased to 45.1% (2020: 47.2%), primarily because of
COVID-related restrictions at our manufacturing sites in H2. This caused
significantly reduced capacity and efficiency, along with the availability of
key components and higher logistics costs with a greater proportion of air
freight, impacting deliveries towards the end of the year. H1 gross margin
of 46.6% reduced to 43.5% in H2. Additionally, a benefit of £0.6 million
received in 2020 as a grant related to COVID-19 from the Singaporean
government as part of the Jobs Support Scheme was not repeated in 2021. We
believe the impact on gross margins to be temporary.
Adjusted Operating Expenses and Margins
A slight increase in operating expenses in 2021 was more than offset by
foreign exchange gains of £2 million, resulting in adjusted operating
expenses decreasing by 2% to £63.2 million. Resulting adjusted operating
margin decreased to 18.8% (2020: 19.7%) as a result of lower gross margins.
Finance Cost
Net finance cost decreased by 24% to £1.3 million (2020: £1.7 million) due
to lower effective interest rates.
Adjusted Profit Before Tax
The Group generated adjusted profit before tax and specific items of £43.8
million, representing an improvement of 7% at constant currency (a decrease of
1% as reported) compared to last year.
Specific Items
In 2021, the Group incurred £15.4 million (2020: £8.6 million) of specific
items. This was predominantly legal costs of £10.1 million (2020: £0.4
million) relating to a non-customer-related legal dispute in North America
(see Legal below), £2.8 million of amortisation of intangible assets relating
to previous business combinations (2020: £3.2 million), and ERP
implementation costs of £2.1 million (2020: £1.9 million). The ERP
implementation is expected to be completed in H1 2022, and remaining costs
will continue to be classified as specific items.
Legal
As reported last year, in September 2020, Comet Technologies USA Inc., Comet
AG, and YXLON International (collectively “Comet”) filed a lawsuit against
XP Power LLC, alleging trade secret misappropriation relating to RF match and
generator technology. The lawsuit is still ongoing, and the Group has incurred
legal costs of £10.1 million in 2021 (2020: £0.4 million). XP Power believes
there is no merit to this lawsuit and is vigorously defending claims brought
against it by Comet. A jury trial for this lawsuit is currently set to begin
on March 14, 2022. The Group expects to incur further legal costs until this
matter is resolved, the magnitude of which cannot currently be estimated with
any certainty. No provision in relation to the dispute has been recognised as
the amount of outflow, if any, cannot be estimated reliably. Further
information about the matter and its possible outcomes are not provided as
such disclosures could be detrimental to the interests of the company in this
dispute.
Profit Before Tax
Profit before tax of £28.4m was 13% lower at constant exchange rates than
2020 mainly due to the legal costs associated with the lawsuit in North
America noted above.
Taxation
The effective tax rate on adjusted profit before tax increased by 770bps to
19.2% (2020: 11.5%), within our guidance range, as the one-off impacts in 2020
of employee share option awards and utilisation of tax losses were not
repeated.
The effective tax rate on statutory profit before tax increased by 780bps to
19.0% (2020: 11.2%).
Going forward, XP Power expects the effective tax rate to be approximately
17–20%, depending predominantly on the regional mix of profits.
Research and Development (R&D)
Gross R&D expenditure was £16.8 million, representing 7% of revenue; an
increase of 6% over prior year. Innovation is a key part of the Group’s
strategy and, as a result, R&D investment is expected to continue to grow as
the Group extends its engineering capabilities with a particular focus on RF
and high-power, high-voltage product development activities.
The Group capitalised £8.3 million of R&D costs (2020: £7.7 million), which
reflects the development of new products as the Group expands its product
portfolio. In 2022 we are expecting this investment to increase to c.£10
million.
Capital Expenditure
The Group continued to invest in its infrastructure, both through the upgrade
of our ERP system and capital investment at our manufacturing facilities to
expand capacity and improve operational performance. £13.6 million (2020:
£7.2 million) was incurred on capital expenditure during 2021.
We expect 2022 to be an abnormally high year of expenditure before returning
towards historic levels. The expenditure is necessary to meet our longer-term
growth plans and will generate attractive returns. We plan to invest c.£18
million during the new financial year, with the main investments related to
maintenance and expansion of our existing manufacturing facilities, investment
in required new manufacturing capacity in Asia to meet long term demand. The
completion and upgrade of our ERP system is expected to be c.£4 million.
Earnings Per Share
Basic earnings per share decreased to 115.8p (2020: 163.0p) and adjusted
diluted earnings per share decreased by 11% to 179.4 pence and 176.3 pence
respectively (2020: 201.8 pence and 198.4 pence).
Cash Flow
The Group continues to be highly cash generative, with net cash from
operations of £36.4 million (2020: £45.6 million), representing cash
conversion of 122% (2020: 122%). Within working capital, inventory increased
through investment in raw materials and safety stocks to manage supply issues
and the customer demand backlog. On an adjusted basis, excluding specific
items, the cash conversion is 111% (2020: 117%).
Free cash flow before acquisitions, dividends and repayment of borrowings was
£12.5 million (2020: £31.3 million).
The Group finished 2021 with net debt of £24.6 million (2020: £17.9
million), comprising cash and cash equivalents of £9.0 million and gross debt
of £33.6 million. The increase in net debt during 2021 was a result specific
items, offset by the continued strong cash conversion.
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. Where opportunities are in line with the Group’s
strategy and meet management’s strict criteria to deliver value to
shareholders, the Group will continue to review acquisition opportunities.
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 2021. This dividend will be payable to members on the register on
25 March 2022 and will be paid on 28 April 2022. When combined with the
interim dividends for the previous three quarters, the total dividend for the
year will be 94 pence per share (2020: 74 pence).
The Group plans to operate in a range of between 1 - 2x net debt to adjusted
EBITDA in the medium term.
Foreign Exchange
The Group reports its results in sterling, but the US dollar continues to be
our principal trading currency, with approximately 87% (2020: 85%) of our
revenues denominated in US dollars. The average sterling to US dollar exchange
rate increased by 8% from 1.28 to 1.38 resulting in a £3.2m adverse impact on
adjusted operating profit.
Outlook
For 2022, despite the ongoing challenges and uncertainty that remain in
relation to our supply chain, component shortages and inflationary pressures,
the record order book and the positive demand backdrop, across all our
sectors, provides us with cautious optimism for our prospects. We remain
excited about our longer-term outlook
Oskar Zahn
Chief Financial Officer
XP Power Limited
Consolidated Statement of Comprehensive Income for the financial year ended
31 December 2021
£ Millions Note 2021 2020
Revenue 2 240.3 233.3
Cost of sales (132.0) (123.2)
Gross profit 108.3 110.1
Other Income * 0.6
Expenses
Distribution and marketing (47.8) (52.4)
Administrative (14.0) (5.0)
Research and development (16.8) (15.9)
Operating profit 29.7 37.4
Finance charge (1.3) (1.7)
Profit before tax 28.4 35.7
Income tax expense 3 (5.4) (4.0)
Profit after tax 23.0 31.7
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 0.9 (3.6)
0.9 (3.6)
Items that will not be reclassified subsequently to profit or loss:
Currency translation differences arising from consolidation * *
Other comprehensive profit/(loss) for the year, net of tax 0.9 (3.6)
Total comprehensive income for the year 23.9 28.1
Profit attributable to:
Equity holders of the Company 22.6 31.5
Non-controlling interests 0.4 0.2
23.0 31.7
Total comprehensive income attributable to:
Equity holders of the Company 23.5 27.9
Non-controlling interests 0.4 0.2
23.9 28.1
Earnings per share attributable to equity holders of the Company (pence per share)
- Basic earnings per share 5 115.8 163.0
- Diluted earnings per share 5 113.8 160.3
*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 2021
£ Millions Note 2021 2020
ASSETS
Current assets
Corporate tax recoverable 2.9 3.8
Cash and cash equivalents 9.0 13.9
Inventories 74.0 54.2
Trade receivables 30.8 30.2
Other current assets 5.0 4.6
Derivative financial instruments * 0.3
Total current assets 121.7 107.0
Non-current assets
Goodwill 52.5 52.2
Intangible assets 56.3 46.6
Property, plant and equipment 30.2 28.4
Right-of-use assets 8.3 5.1
Deferred income tax assets 3.2 2.9
ESOP loan to employees * *
Total non-current assets 150.5 135.2
Total assets 272.2 242.2
LIABILITIES
Current liabilities
Current income tax liabilities 2.4 4.9
Trade and other payables 44.7 28.2
Derivative financial instruments 0.1 0.1
Lease liabilities 1.6 1.5
Accrued consideration * -
Borrowings 6 0.2 -
Total current liabilities 49.0 34.7
Non-current liabilities
Accrued consideration 1.3 1.0
Borrowings 6 33.4 31.8
Deferred income tax liabilities 9.4 6.7
Provisions 0.2 0.1
Lease liabilities 6.5 3.4
Total non-current liabilities 50.8 43.0
Total liabilities 99.8 77.7
NET ASSETS 172.4 164.5
EQUITY
Equity attributable to equity holders of the Company
Share capital 27.2 27.2
Merger reserve 0.2 0.2
Share option reserve 5.6 4.1
Treasury shares reserve * (0.1)
Translation reserve (2.9) (3.8)
Other reserve 4.4 3.6
Retained earnings 137.0 132.6
171.5 163.8
Non-controlling interests 0.9 0.7
TOTAL EQUITY 172.4 164.5
*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 financial year ended 31 December 2021
Attributable to equity holders of the Company
£ Millions Share capital Share option reserve Treasury shares reserve Merger reserve Translation reserve Other reserve Retained earnings Total Non- controlling interests Total equity
Balance at 1 January 2020 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
Exercise of share options - (0.5) 0.1 - - 1.0 - 0.6 - 0.6
Employee share option plan expenses - 1.5 - - - - - 1.5 - 1.5
Tax on employee share option plan expenses - 0.5 - - - - - 0.5 - 0.5
Dividends paid - - - - - - (18.2) (18.2) (0.2) (18.4)
Future acquisition of non-controlling interest - - - - - (0.2) - (0.2) - (0.2)
Exchange difference arising from translation of financial statements of foreign operations - * - - 0.9 - * 0.9 * 0.9
Profit for the year - - - - - - 22.6 22.6 0.4 23.0
Total comprehensive income for the year - * - - 0.9 - 22.6 23.5 0.4 23.9
Balance at 31 December 2021 27.2 5.6 * 0.2 (2.9) 4.4 137.0 171.5 0.9 172.4
*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 2021
£ Millions Note 2021 2020
Cash flows from operating activities
Profit after tax 23.0 31.7
Adjustments for:
- Income tax expense 3 5.4 4.0
- Amortisation and depreciation 13.2 14.0
- Finance charge 1.3 1.7
- Equity award charges, net of tax 1.5 1.5
- Fair value loss on DFI 0.3 0.5
- Loss on disposal of property, plant and equipment * *
- Loss on disposal of intangible assets - 1.2
- Unrealised currency translation (gain)/loss (0.1) 0.2
- Provision for doubtful debts * 0.4
Change in working capital, net of effects from acquisitions:
- Inventories (19.0) (12.3)
- Trade and other receivables (1.1) 2.7
- Trade and other payables 16.1 3.3
- Provision for liabilities and other charges * *
Cash generated from operations 40.6 48.9
Income tax paid, net of refund (4.2) (3.3)
Net cash provided by operating activities 36.4 45.6
Cash flows from investing activities
Purchases and construction of property, plant and equipment (5.5) (4.0)
Capitalisation of research and development expenditure (8.3) (7.7)
Capitalisation of intangible software and software under development (8.1) (3.2)
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 (21.9) (15.4)
Cash flows from financing activities
Proceeds from borrowings 3.7 -
Repayment of borrowings (2.9) (20.7)
Principal payment of lease liabilities (1.7) (1.7)
Proceeds from exercise of share options 0.6 3.5
Interest paid (0.9) (1.3)
Dividend paid to equity holders of the Company (18.2) (7.3)
Dividend paid to non-controlling interests (0.2) *
Net cash used in financing activities (19.6) (27.5)
Net (decrease)/increase in cash and cash equivalents (5.1) 2.7
Cash and cash equivalents at beginning of financial year 13.9 11.2
Effects of currency translation on cash and cash equivalents * *
Cash and cash equivalents at end of financial year 8.8 13.9
*Balance is 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 2021
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 adopted by the International
Accounting Standards Board (“IFRS as adopted by the IASB”).
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 2021 Year to 31 December 2020 (1)
North North
£ Millions Europe America Asia Total Europe America Asia Total
Semiconductor Manufacturing Equipment 3.0 75.2 15.1 93.3 1.8 60.6 7.2 69.6
Industrial Technology 43.7 37.1 11.2 92.0 42.8 37.4 14.2 94.4
Healthcare 20.6 28.9 5.5 55.0 21.0 43.2 5.1 69.3
Total 67.3 141.2 31.8 240.3 65.6 141.2 26.5 233.3
(1) Prior year comparatives were reclassified to ensure consistency with 2021
presentation.
Revenues of £40.2 million (2020: £32.1 million) are derived from a single
external customer in the
Semiconductor Manufacturing Equipment sector.
Reconciliation of segment results to profit after tax:
£ Millions 2021 2020 (1)
Europe 20.3 18.2
North America 46.1 48.7
Asia 10.0 8.4
Segment results 76.4 75.3
Research and development (16.0) (14.9)
Manufacturing (3.6) (3.1)
Corporate cost from operating segment (11.7) (11.3)
Adjusted operating profit 45.1 46.0
Finance charge (1.3) (1.7)
Specific items (15.4) (8.6)
Profit before tax 28.4 35.7
Income tax expense (5.4) (4.0)
Profit after tax 23.0 31.7
(1) Prior year comparatives were reclassified to ensure consistency with 2021
segmental presentation.
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 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 2021 2020
Operating profit 29.7 37.4
Adjusted for:
Acquisition costs 0.1 0.3
Costs related to ERP implementation 2.1 1.9
Amortisation of intangible assets due to business combination 2.8 3.2
Legal costs 10.1 0.4
Restructuring costs - 2.3
Fair value adjustments on DFI 0.3 0.5
15.4 8.6
Adjusted operating profit 45.1 46.0
(ii) A reconciliation of profit before tax to adjusted profit before tax
is as follows:
Profit before tax (“PBT”) 28.4 35.7
Adjusted for:
Acquisition costs 0.1 0.3
Costs related to ERP implementation 2.1 1.9
Amortisation of intangible assets due to business combination 2.8 3.2
Legal costs 10.1 0.4
Restructuring costs - 2.3
Fair value adjustments on DFI 0.3 0.5
15.4 8.6
Adjusted PBT 43.8 44.3
(iii) A reconciliation of profit after tax to adjusted profit after tax is
as follows:
Profit after tax (“PAT”) 23.0 31.7
Adjusted for:
Acquisition costs 0.1 0.3
Costs related to ERP implementation 2.1 1.9
Amortisation of intangible assets due to business combination 2.8 3.2
Legal costs 10.1 0.4
Restructuring costs - 2.3
Fair value adjustments on DFI 0.3 0.5
Non-recurring tax benefits (1) (3.0) (1.1)
12.4 7.5
Adjusted PAT 35.4 39.2
(1 ) Adjusted for tax on specific items relating to completed acquisitions of
£10,058 (2020: £0.1 million), costs related to ERP implementation of £0.3
million (2020: £0.3 million), legal costs of £2.6 million (2020: £0.1
million), restructuring costs of £nil (2020: £0.5 million) and fair value
adjustments on DFI of £0.1 million (2020: £0.1 million)
3. Income taxes
£ Millions 2021 2020
Singapore corporation tax
- current year 1.1 4.5
- under/(over) provision in prior financial year 0.1 (0.1)
Overseas corporation tax
- current year 1.2 0.5
- over provision in prior financial year * (1.4)
Withholding tax 0.1 0.1
Current income tax 2.5 3.6
Deferred income tax
- current year 2.6 (0.1)
- under provision in prior financial years 0.3 0.5
Income tax expense 5.4 4.0
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 2021 2020
Profit before income tax 28.4 35.7
Tax on profit at standard Singapore tax rate of 17% (2020: 17%) 4.8 6.1
Tax incentives (0.7) (0.6)
Higher rates of overseas corporation tax 1.1 0.5
Deduction for employee share options (0.3) (1.2)
Non-deductible expenditure 0.2 0.3
Non-taxable income (0.1) (0.2)
Under/(over) provision of tax in prior financial years 0.4 (1.0)
Withholding tax 0.1 0.1
Income tax expense 5.4 4.0
4. Dividends
Amounts recognised as distributions to equity holders in the period:
2021 2020
Pence per share £ Millions Pence per share £ Millions
Prior year third quarter dividend paid 20.0* 3.9 20.0 3.8
Prior year final dividend paid 36.0* 7.1 - -
First quarter dividend paid 18.0^ 3.5 - -
Second quarter dividend paid 19.0^ 3.7 18.0* 3.5
Total 93.0 18.2 38.0 7.3
* Dividends in respect of 2020 (74.0p).
^ Dividends in respect of 2021 (94.0p).
The third quarter dividend of 21.0 pence per share was paid on 17 January
2022. The proposed final dividend of 36.0 pence per share for the year ended
31 December 2021 is subject to approval by Shareholders at the Annual General
Meeting and has not been included as a liability in these financial
statements. Subject to shareholder approval, the dividend will be paid on 28
April 2022 to members on the register at the record date of 25 March 2022, the
ex-dividend date will be 24 March 2022. The last date for election for the
share alternative to the dividend under the Company’s Dividend Reinvestment
Plan is 5 April 2022.
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:
2021 2020
£ Millions
Earnings
Earnings for the purposes of basic and diluted earnings per share (profit attributable to equity holders of the Company) 22.6 31.5
Earnings for earnings per share 22.6 31.5
Number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands) 19,514 19,326
Effect of potentially dilutive share options (thousands) 344 327
Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 19,858 19,653
Earnings per share from operations
Basic 115.8p 163.0p
Basic adjusted* 179.4p 201.8p
Diluted 113.8p 160.3p
Diluted adjusted * 176.3p 198.4p
*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) 22.6 31.5
Amortisation of intangible assets due to business combination 2.8 3.2
Acquisition costs 0.1 0.3
Non-recurring tax benefits (3.0) (1.1)
Costs related to ERP implementation 2.1 1.9
Legal costs 10.1 0.4
Restructuring costs - 2.3
Fair value adjustments on DFI 0.3 0.5
Adjusted earnings 35.0 39.0
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 facilities expire in October 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% for the utilisation facility and a margin of
0.4% for the unutilised facility.
The borrowings are repayable as follows:
£ Millions 2021 2020
On demand or within one year 0.2 -
In the second year - -
In the third year 33.4 -
In the fourth year - 31.8
Total 33.6 31.8
Management assessed all loan covenants have been complied with as at 31
December 2021.
7. Contingent Liabilities
As reported last year, in September 2020, Comet Technologies USA Inc., Comet
AG, and YXLON International (collectively “Comet”) filed a lawsuit against
XP Power LLC, alleging trade secret misappropriation relating to RF match and
generator technology. The lawsuit is still ongoing, and the Group has incurred
legal costs of £10.1 million in 2021 (2020: £0.4 million). XP Power believes
there is no merit to this lawsuit and is vigorously defending claims brought
against it by Comet. A jury trial for this lawsuit is currently set to begin
on March 14, 2022. The Group expects to incur further legal costs until this
matter is resolved, the magnitude of which cannot currently be estimated with
any certainty. No provision in relation to the dispute has been recognised as
the amount of outflow of economic benefits, if any, cannot be estimated
reliably. Further information about the matter and its possible outcomes are
not provided as such disclosures could prejudice seriously the position and
interests of the company in this dispute.
8. 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.
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 will commence
construction of a new manufacturing facility in a third country in 2022 to
increase capacity to meet the demand from across the Group. We expect to
commission this new facility in 2023.
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; inflation, 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 at 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 2021, no single customer accounted for
more than 17% 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. With effect from 7 February 2022, the address of registered
office has changed to 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 2020 or 2021.
The financial information for the year ended 31 December 2020 is derived from
the XP Power Limited statutory accounts for the year ended 31 December 2020,
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 2021 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 adopted by the IASB, this
announcement does not itself contain sufficient information to comply with
SFRS(I) and IFRS as adopted by the IASB. The Company expects to publish full
financial statements that comply with SFRS(I) and IFRS as adopted by the IASB.
This announcement was approved by the Directors on 28 February 2022.
Copyright (c) 2022 PR Newswire Association,LLC. All Rights ReservedRecent news on XP Power
See all newsREG-XP Power Ltd: Result of AGM
AnnouncementREG-XP Power Ltd: Q1 Trading Update
AnnouncementREG-XP Power Ltd: Annual Financial Report
AnnouncementREG-XP Power Ltd: Holding(s) in Company
AnnouncementREG-XP Power Ltd: Holding(s) in Company
Announcement