REG-XP Power Ltd: Final Results <Origin Href="QuoteRef">XPP.L</Origin> - Part 1
08/03/2017 07:05
8 March 2017
XP Power Limited
(“XP Power” or “the Group”)
Annual Results for the year ended 31 December 2016
XP Power, one of the world's leading developers and manufacturers of critical
power control components for the electronics industry, today announces its
annual results for the year ended 31 December 2016.
Highlights
Adjusted (1) 2016 2015 Change
Order intake £133.5m £110.5m +21%
Revenue £129.8m £109.7m +18%
Gross margin 47.8% 49.8% -200bps
Adjusted profit before tax (1) £28.6m £25.7m +11%
Adjusted profit after tax and minority interest (1) £22.3m £20.2m +10%
Adjusted diluted earnings per share (1) 115.3p 104.3p +11%
Operating cash flow £27.9m £21.0m +33%
Net cash/(debt) £3.7m (£3.7)m N/A
Final dividend per share 26.0p 24.0p +8%
Total dividend per share 71.0p 66.0p +8%
Reported
Profit before tax £27.8m £25.4m + 9%
Profit after tax and minority interest £21.5m £19.9m + 8%
Diluted earnings per share 111.2p 102.8p + 8%
(1) Adjusted for one-off costs associated with acquisitions of £0.4 million
(2015: £0.3 million) and intangibles amortisation of £0.4 million (2015:
nil)
* Record revenues and earnings achieved in 2016 despite challenging economic
conditions and political uncertainties
* Improvement in trading conditions during the second half of 2016, with
positive momentum in order intake and revenues
* Full year revenues increased by 18% (7% in constant currency) to £129.8
million (2015: £109.7 million)
* Revenues from XP Power’s own-designed products increased by 28% (15% in
constant currency) to £95.3 million (2015: £74.6 million) to reach a record
73% of total revenue (2015: 68%)
* Sales of high efficiency XP “Green” Power products grew by 28% in 2016
to £30.2 million (2015: £23.6 million)
* Order intake of £133.5 million (2015: £110.5 million) – an increase of
21% (9% in constant currency)
* Balance sheet remains robust, with net cash of £3.7 million at year end
(2015: net debt of £3.7 million)
* Accelerated transfer of lower power/lower complexity product from China
manufacturing plant to Vietnam factory to enhance competitiveness and free up
capacity in China
* Power converter production at Vietnam facility increased by 119% to 377,700
units, strengthening the Group’s cost advantage over many of its competitors
* Expect to break ground on construction of second manufacturing facility at
Vietnam site in Q4 2017
James Peters, Chairman, commented:
“We are encouraged by the strong finish we had to 2016. The Group entered
2017 with a strong order backlog and, despite the mixed global economic
picture, we have established positive momentum in the new financial year. The
further utilisation of lower cost production capacity in Vietnam is giving us
a competitive advantage and we will begin work on a second factory at the site
towards the end of 2017, to address our future volume growth requirements.
In addition, the Group has a strong balance sheet and a highly cash generative
business that will enable us to help fund further targeted acquisitions to
broaden our product offering and engineering capabilities.
We remain excited about the opportunities we believe will be available to the
Group in the years ahead.”
Enquiries:
XP Power
Duncan Penny, Chief Executive
+44 (0)7776 178018
Jonathan Rhodes, Finance Director
+44 (0)7500 944614
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.
XP Power typically designs power control solutions into the end products of
major blue-chip OEMs, with a focus on the industrial (circa 50% of sales),
healthcare (circa 30% sales) and technology (circa 20% 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 5 to 7 years depending on
the industry sector.
XP Power has invested in research and development and its own manufacturing
facilities in China 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 serves a global blue-chip customer base from 27
locations in Europe, North America and Asia.
For further information, please visit xppower.com
Chairman’s Statement
Our Progress in 2016
2016 was another year of significant progress; despite challenging economic
conditions and political uncertainties, we achieved record revenues and
earnings. In addition, we have enhanced our manufacturing capability by
reducing our lead times and introducing lean manufacturing principles. We have
also continued to ramp-up power converter production in our Vietnam facility,
giving us a cost advantage over many of our competitors. Finally, we
strengthened our Board, and set the stage for the next phase of our
development.
Results
Our financial performance for the year was again strong. Revenues were a
record £129.8 million (2015: £109.7 million), an increase of 7% in constant
currency. Order intake was £133.5 million (2015: £110.5 million)
representing an increase of 9% in constant currency.
Gross margin showed a slight decline to 47.8% (2015: 49.8%) due to product mix
and the weakening of Sterling against the US Dollar following the United
Kingdom’s vote to leave the European Union, reflecting the fact that the
majority of our underlying product costs are denominated in US Dollars.
Profit before tax was £27.8 million (2015: £25.4 million). After adding back
costs associated with aborted acquisitions of £0.4 million (2015: £0.3
million) and amortisation of intangible assets of £0.4 million (2015: nil),
adjusted profit before tax was £28.6 million (2015: £25.7 million), an
increase of 11% over that reported in 2015. Basic earnings per share increased
8% to 112.0 pence (2015:103.7 pence). Diluted adjusted earnings per share
increased 11% to 115.3 pence (2015: 104.3 pence).
Strategy Review
The Company’s strategy, which it has executed successfully over many years,
has generated good results. The Executive Management team conducted a review
of the strategy during 2016 with input and review by the Board, to ensure it
remained appropriate and up-to-date. This review concluded that the essence of
the strategy – to continue to move up the value chain and win a growing
proportion of our customers’ available business – should be unchanged but
that a number of refinements be adopted to further improve upon our success to
date. In particular, we now identify expansion of our product range by
targeted acquisitions and achieving operational excellence as additional
specific strategic goals. Further detail on our updated strategy is provided
in the Operating and Financial Review below.
Strengthening Our Board
We were pleased to welcome Polly Williams, who joined our Board from 1 January
2016 as a Non-Executive Director, bringing with her a wealth of public company
experience. Polly chairs XP Power’s Remuneration Committee and is a member
of the Audit Committee.
With this latest appointment, we consider that the Board now has the
appropriate experience and capabilities to take our Company to the next level
of its development.
Dividend
Our continued strong financial performance, strong cash flows and confidence
in the Group’s long term prospects have enabled us to increase dividends
consistently over a sustained period. In line with our progressive dividend
policy, the Board is recommending a final dividend of 26 pence per share for
the fourth quarter of 2016. This dividend will be payable to members on the
register on 17 March 2017 and will be paid on 21 April 2017.
When combined with the interim dividends for the previous quarters, the total
dividend for the year will be 71 pence per share (2015: 66 pence); an increase
of 8%.
The compound average growth rate of our dividend has been 10% over the last
five years.
Our People and Our Values
The success of an organisation is dependent on the people and talent within
it. We have significant strength and depth within our Company, with the
majority of our Executives boasting long tenures with XP Power. We have
conducted annual employee engagement surveys since 2015 and I am pleased that
we have shown consecutive strong and improving scores each time we repeat the
survey having taken actions to address any issues arising from the results of
the prior survey. One of the main findings from these employee surveys was
that our employees are proud to be part of our Company, highlighting the
significant engagement we have between the business and our people. Our
cultural survey score is one of our non-financial key performance indicators.
During 2016, we rolled out a number of training programs built around our core
values of integrity, knowledge, flexibility, speed and customer focus. These
core values are part of our DNA and have been responsible for driving our
performance and customer service commitment over the long term. Training
programs were delivered across the world and were extremely well-received.
Sustainability
Sustainability is extremely important to our people and our customers. We
punch well above our weight in this regard and set ourselves the aspirational
goal of leading our industry regarding environmental and sustainability
matters. This is reflected in the work we have done to produce a portfolio of
ultra-high efficiency products which consume less energy, use less materials
and do not contain substances which are harmful to the environment. These XP
“Green” Power products grew at an impressive rate of 28% in 2016.
Our Vietnam factory is one of the most environmentally friendly in the
industry with an efficient building envelope, ultra-efficient air
conditioning, low-energy lighting, water capture and recycling and solar panel
array. This is not only important to our customers but resonates with our
employees.
Outlook
We are encouraged by the strong finish we had to 2016. The Group entered
2017 with a strong order backlog and, despite the mixed global economic
picture, we have established positive momentum in the new financial year.
In addition, the Group has a strong balance sheet and a robust business that
provides excellent cash generation to help fund targeted acquisitions that
will broaden our product offering and engineering capabilities.
James Peters
Chairman
Operating and Financial Review
Review of our year
While, overall, the market for industrial electronics remained challenging in
2016, trading conditions improved during the second half and we had some
positive momentum in order intake and revenues. We continued to make progress
with the execution of our strategy and reported record revenues, as well as
delivering our highest ever level of own designed/own manufactured product
revenues which now represent 73% of the total.
We also undertook a review of our well-established strategy during the year,
to ensure it remains appropriate and up-to-date. The results of this review
are discussed in more detail below.
We have been actively transferring more of the lower power/lower complexity
product from our China facility to our Vietnam facility to maintain cost
competitiveness and to free up capacity in China. We have also implemented a
number of lean manufacturing principles which have allowed us to reduce lead
times. We would also expect to see cost benefits from these initiatives as we
trade through 2017.
We remain excited about the future prospects for our business.
Strategic progress
During 2016, the Executive Management team critically reviewed the strategy we
have been successfully executing and which has produced good results over a
sustained period. The review concluded that the fundamental essence of the
strategy - targeting key accounts where we can add value and gaining more of
the available business in those accounts - remains appropriate and effective.
However, a number of refinements were made to the strategy, including a
greater emphasis on acquisitions to further expand our product offering and
making the pursuit of operational excellence a specific strategic goal.
Our refined strategy can be summarised as follows:
* Develop a broad range of competitive products;
* Target accounts where we can add value;
* Increase vertical penetration of target accounts;
* Enhance brand awareness;
* Achieve operational excellence;
* Lead our industry on environmental matters; and
* Selective acquisitions of complementary businesses to expand our product
offering.
We continue to make significant progress against each of these objectives. We
believe we have the broadest, most up-to-date portfolio of products, many of
which are class leading in terms of efficiency and low stand-by power. Our
portfolio of XP “Green” Power products grew by 28% in 2016 to £30.2
million (2015: £23.6 million) demonstrating how well these products have been
adopted by our customers. We also continue to see revenues from our own
designed/manufactured products grow at a faster rate than those from other
products.
We consider that our transition from a sales distribution company, through the
addition of a design capability, to designer and manufacturer is now complete.
We are now clearly recognised as both a designer and manufacturer by key
customers in the industrial, healthcare and technology markets. Revenues from
our own-designed products set a new record of £95.3 million in the year,
representing 73% of revenue (2015: 68%). We expect further growth in this area
in 2017.
As we gain preferred or approved supplier status with our blue-chip customers
we are gaining exposure to new opportunities in additional product areas. Our
broad range of products, excellent customer service, low cost Asian
manufacturing capability and engineering support on three continents makes us
an ideal strategic partner to these larger blue-chip customers. We have
established this position with our standard product offering but now we see
attractive opportunities in these larger customers to engage on custom
designs. We have already deployed more of our engineering services resource
into these areas but also see opportunities for further acquisitions where our
customer relationships and supplier approvals at key customers can be combined
with acquired custom engineering expertise.
As we look forward, we see further opportunities to capitalise on our customer
relationships and large direct sales channel by further expanding our product
offering. Our acquisition of EMCO in November 2015 was an excellent example of
this initiative and we have been actively seeking further opportunities to
expand our product capability into complementary areas in which we do not
currently operate or where we are under-represented.
Productivity will be a key area of future focus. We deliver excellent customer
service and operating margins demonstrating that we have an efficient and
effective business model. As our organisation grows geographically and in
complexity we will ensure that we retain and build on the core values of
knowledge, flexibility and speed that have served us well to date. In
particular, we have continued to upgrade our systems and have brought new
talent with experience in complex operations and lean process techniques into
the organisation. We will be placing greater emphasis on operational
excellence in 2017 to further enhance our productivity.
Marketplace
All industry sectors and all geographies experienced revenue growth in 2016
over 2015 and, significantly, sequential growth in the second half of 2016
over the first half. We therefore entered 2017 with good momentum and a
healthy order book.
North America revenues in 2016 were $93.7 million but they did benefit from
incremental revenues from the acquisition of EMCO in November 2015. Without
the benefit of the EMCO revenues, North America revenues would have been flat
year-on-year. However, order intake in North America was strong in the second
half of 2016 - with $51.6 million booked compared with $47.0 million in the
first half. North America now has the benefit of good momentum going into
2017, with some promising new programs where we expect volumes to ramp-up
significantly during the year.
Technology represented 31% of revenues in North America in 2016 compared to
30% in 2015. The industrial sector rebounded and represented 35% of revenues
in 2016 compared to 31% in 2015. Healthcare also performed well in North
America in absolute terms, with revenues ahead by 10% as a number of new
programs ramped-up, but its share of revenues declined to 34% (2015: 39%) as
it did not match the pace of the recovery we saw in the industrial sector.
Our Asia business continued to grow despite the widely reported slow-down in
China. Asia revenues grew 18% in 2016 to $16.1 million (2015: $13.7 million).
The customers driving this increase generally sell their end products outside
of the emerging markets. Industrial and technology sectors showed good growth
in Asia whilst healthcare remained flat year-on-year.
Our European business grew by 10% to £49.4 million (2015: £45.1 million)
which is the third successive year of growth in challenging market conditions.
The industrial, healthcare and technology sectors all saw growth in Europe and
we gained increased traction with some of the bigger blue-chip clients,
which we expect to drive further European growth in 2017.
The geographic split of reported revenue was broadly maintained year-on-year.
Overall North America represented 53% of revenue (2015: 51%), Asia represented
9% of revenue (2015: 8%) and Europe represented 38% of revenue (2015: 41%).
The average exchange rate for the US Dollar compared to Sterling was 1.38 in
2016 versus 1.54 in 2015 representing a 10% weakening of Sterling following
the Brexit vote. This caused North America and Asia revenues to be inflated,
due to translation, and all of our costs reported in Sterling to be inflated
as our product costs are predominately denominated in US Dollars. We discuss
the potential impact of the Brexit vote and foreign exchange volatility in
more detail below.
The overall picture by sector reflects the narrative above. Industrial
represented 46% of revenue (2015: 44%), healthcare represented 29% of revenue
(2015: 31%) and technology represented 25% of revenue (2015: 25%). All our
products are designed into capital equipment so our revenues will always be
affected by capital equipment cycles, however, our exposure to a large number
of end markets helps mitigate the cyclicality in any particular sector,
producing an underlying resilience in our diversified business model.
We continue to perform well against our traditional established competition.
Our broad range of standard products and excellent customer service delivered
by the largest direct sales force in our industry is a compelling proposition.
We expect future competitors to emerge from Asia as companies with low cost
manufacturing and engineering attempt to enter parts of the industrial and
healthcare markets in Europe and North America. We need to ensure we continue
to drive down our manufacturing costs and maintain our reputation as the
experts in power to mitigate this threat.
Research and Development
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
increased our design engineering resource and capabilities during 2016 in both
our North America and United Kingdom design centres, including the
introduction of a firmware capability for which we are seeing increasing
demand. We released 47 new product families in 2016 (2015: 22) and 33 of these
can be classified as ultra-high efficiency.
The high level of new product introductions was driven by the addition of a
new third party supplier to enhance our DC-DC product offering.
Manufacturing
The addition of a manufacturing site in Vietnam in 2012 added much needed
capacity and also enhanced our cost competitiveness as production costs in
Vietnam are significantly lower than those of our existing Chinese facility.
Production volumes of magnetics windings at our Vietnam facility have
continued to ramp-up and in 2016 we produced 4.9 million windings compared to
4.3 million in 2015. We have been actively transferring the lower power/lower
complexity products from China to Vietnam in 2016 to improve our cost position
and free up capacity in China. In 2016 we manufactured 377,700 power supplies
in our Vietnam facility compared to 172,500 in 2015.
We continue to make process improvements in our manufacturing facilities,
where we are applying more lean process principles. Our internal yields
continue to improve and we have redesigned some of our processes to reduce
product lead times to provide improved customer service and reduced freight
costs. We expect to derive cost benefits from our lean manufacturing
initiatives as we trade through 2017.
Our longer term planning indicates we will need additional manufacturing
capacity in the first half of 2019. We have therefore allocated US$1.5 million
of our capital budget in Q4 of 2017 to break ground on a second factory at the
Vietnam site, as envisaged at the time of our original investment.
Enhancing our digital presence
In December 2015 we launched our completely revamped website at xppower.com.
The new mobile-optimised site was specifically designed to improve interaction
and the overall user experience and has been well-received by customers.
Distribution
In the first quarter of 2014, we signed a distribution agreement with global
electronic components distributor Digi-key, to complement our existing
distribution partnership with Premier Farnell, incorporating Farnell in
Europe, element14 in Asia and Newark in America. In the summer of 2016, we
engaged with another global electronic components distributor,
Electrocomponents plc, incorporating trading brands RS Components in Europe &
Asia, and Allied Electronics in America. With this appointment, we now have a
presence with three leading global high service level/online distribution
channels, making our product more readily available to a larger number of
small and medium-sized customers and enhancing our brand recognition. We are
experiencing excellent growth through these channels, allowing our direct
sales teams to concentrate on our larger blue-chip accounts.
Systems Development
Efficient and robust systems are essential in order for us to manage an
international business with a highly diverse customer base. In 2014 we
upgraded our Customer Relationship Management systems across all three
regions. This has allowed us to collaborate and share information much more
effectively and provide even better customer service. From the beginning of
January 2015 we replaced our North America business systems with SAP and are
now running the same Enterprise Resource Management System across all three
geographies which further enhances the speed and capability of our internal
reporting.
This integrated approach ensures that we have the robust systems and reporting
necessary to support our future growth.
Revenue and order intake
Revenues set a new record and grew 18% over the prior year (7% in constant
currency) to £129.8 million (2015: £109.7 million). Order intake grew by 21%
(9% in constant currency) to £133.5 million (2015: £110.5 million). Revenues
from our own designed product – a key indicator of our strategic progress
– grew by 28% (or approximately 15% in constant currency) to £95.3 million
(2015: £74.6 million) representing 73% of revenue (2015: 68%) and setting
another new record.
Margins
Gross margin declined slightly to 47.8% (2015: 49.8%), largely due to product
mix and the effect of the depreciation of Sterling versus the US Dollar. The
majority of our product costs are denominated in US Dollars so while the
weakening of Sterling helps our revenue line, product costs increase more than
the revenues as a result of the weakness of Sterling. Operating margins
declined from 23.3% in 2015 to 21.6%. This was partly due to the weakness of
Sterling but also due to the operating margins of EMCO being lower than those
of XP Power as a whole.
Profit before tax was £27.8 million (2015: £25.4 million). After adding back
costs associated with aborted acquisitions of £0.4 million (2015: £0.3
million) adjusted profit before tax was £28.2 million, an increase of 10%
over that reported in 2015.
Taxation
The tax charge for the year was £6.3 million (2015: £5.5 million) which
represents an effective tax rate of 22.7% (2015: 21.7%). The effective rate is
primarily determined by how our profits are distributed geographically. We
expect a slight increase in the effective tax rate again in 2017.
Earnings per share
Basic earnings per share increased 8% to 112.0 pence compared to 103.7 pence
in 2015. Diluted earnings per share increased by 8% to 111.2 pence compared
with 102.8 pence in 2015.
After adding back costs associated with aborted acquisitions of £0.4 million
(acquisition costs in 2015: £0.3 million) and intangible assets amortisation
of £0.4 million (2015: nil) adjusted diluted earnings per share was 115.3
pence (2015: 104.3 pence) an increase of 11%.
Cash flow, funding and net cash
Our high margin business model, with modest capital requirements, continues to
produce excellent free cash flows.
We finished 2016 in a net cash position of £3.7 million compared with a net
debt position of £3.7 million at the end of 2015. This position was achieved
after returning £12.9 million to Shareholders in the form of dividends.
In order to finance the acquisition of EMCO in November 2015 the Group took
out a US$12.0 million term debt facility with Bank of Scotland PLC. The
facility is repayable in equal quarterly instalments of US$1.7 million
commenced in June 2016 and ending in December 2017. The facility is priced at
LIBOR plus a margin of 0.95%.
In September 2016 the Group renewed its annual working capital facility at a
level of US$7.5 million (2015: US$ 12.5 million). The facility is priced at
the Bank of England base rate plus a margin of 1.5%. Bank of Scotland PLC
provides the facility.
At 31 December 2016, no working capital facility was drawn down.
Dividends
The attractive cash flow aspect of our business model has enabled us to pursue
a progressive dividend policy over a sustained period of time.
Our policy is to increase dividends progressively whilst maintaining an
appropriate level of cover. This year’s financial performance in terms of
both profitability and cash flow has enabled us to recommend a final dividend
of 26 pence per share which together with the quarterly dividends already paid
gives a total dividend for the year of 71 pence per share (2015: 66 pence per
share) an increase of 8%. Dividend cover for the year was 1.6 times.
Derivatives
The Group’s financial instruments consist of cash, money market deposits,
overdrafts, and various other items such as trade receivables and trade
payables that arise directly from its business operations.
The Group uses forward currency contracts to hedge highly probable forecast
transactions. The instruments purchased are denominated in the currencies of
the Group’s principal markets. The Group had £11.5 million of forward
currency contracts outstanding at 31 December 2016 (2015: £11.3 million).
Brexit
The weakening of Sterling versus the US Dollar in the period following the
United Kingdom Referendum on EU membership on 23 June 2016 has obviously had a
material effect on the presentation of our financial results in 2016.
Approximately 75% of our revenues are denominated in US Dollars and the
translation of these revenues into Sterling for reporting purposes has had a
beneficial effect. However, the majority of our cost of sales and a large
proportion of our operating expenses are also denominated in US Dollars. While
a stronger US Dollar helps our overall gross margin in absolute terms (albeit
to a limited degree) it also has the effect of reducing the gross margin
percentage as costs rise disproportionately to the revenues. We estimate that
our reported 2016 gross margin percentage could be approximately 130 basis
points lower as a result.
For our United Kingdom business invoiced in Sterling, which represents
approximately 13% of our worldwide revenues, margins were reduced in the
second half of 2016 as the associated product cost is denominated in US
Dollars. We have therefore been raising prices as customers place new orders
to compensate for this effect. Although no customer is ever happy with a price
increase, our reasons for doing so are well understood. We therefore expect to
recover a significant portion of our margin losses in the United Kingdom in
2017.
In terms of the broader economic impacts of Brexit on our business, we do not
consider that they will be material. The evidence to date is that some of our
United Kingdom customers are benefiting from the weakening of Sterling as they
are frequently net exporters.
Our products are made in Asia and are already imported into Europe where we
have warehouses in both Germany and the United Kingdom and hence we could ship
our product destined for the European Union directly into Germany or another
appropriate location.
Outlook for 2017
Although there continue to be a number of economic and political uncertainties
which could potentially affect our business in 2017, we consider that we are
well positioned in our marketplace. We have good momentum as our design
pipeline continues to grow. Our order intake in the fourth quarter of 2016 was
strong at £37.1 million and we entered 2017 with a healthy order book.
We also continue to work to identify acquisition opportunities that would be
complementary to our product portfolio.
We remain excited and confident regarding the long term prospects for our
Group.
Duncan
Penny
Jonathan Rhodes
Chief Executive
Finance Director
XP Power Limited
Consolidated Statement of Comprehensive Income for the
Financial year ended 31 December 2016
£ Millions Note 2016 2015
Revenue 2 129.8 109.7
Cost of sales (67.8) (55.1)
Gross profit 62.0 54.6
Expenses
Distribution and marketing (26.6) (22.0)
Administrative (1.5) (1.2)
Research and development (5.9) (5.8)
Operating profit 28.0 25.6
Finance charge (0.2) (0.2)
Profit before income tax 2 27.8 25.4
Income tax expense 3 (6.3) (5.5)
Profit for the year 21.5 19.9
Profit attributable to:
Equity holders of the Company 21.3 19.7
Non-controlling interests 0.2 0.2
21.5 19.9
Earnings per share attributable to equity holders of the Company (pence per share)
- Basic 5 112.0 103.7
- Diluted 5 111.2 102.8
- Diluted adjusted 5 115.3 104.3
XP Power Limited
Consolidated Balance Sheet
As at 31 December 2016
£ Millions Note 2016 2015
(restated)
ASSETS
Current assets
Cash and cash equivalents 9.2 4.9
Inventories 32.2 28.7
Trade and other receivables 21.5 17.5
Other current assets 2.4 2.4
Derivative financial instruments 0.4 -
Total current assets 65.7 53.5
Non-current assets
Goodwill 37.7 35.9
Intangible assets 15.3 12.3
Property, plant and equipment 19.1 16.1
Deferred income tax assets 0.4 0.4
ESOP loan to employees 0.7 0.7
Total non-current assets 73.2 65.4
Total assets 138.9 118.9
LIABILITIES
Current liabilities
Current income tax liabilities 3.3 1.2
Trade and other payables 16.1 14.6
Provision for deferred contingent consideration 0.5 -
Borrowings 6 5.5 4.0
Derivative financial instruments 0.4 -
Total current liabilities 25.8 19.8
Non-current liabilities
Provision for deferred contingent consideration 1.5 1.5
Borrowings 6 - 4.6
Deferred income tax liabilities 4.7 3.9
Total non-current liabilities 6.2 10.0
Total liabilities 32.0 29.8
NET ASSETS 106.9 89.1
EQUITY
Share capital 27.2 27.2
Merger reserve 0.2 0.2
Treasury reserve (0.5) (1.0)
Hedging reserve 0.3 0.1
Translation reserve 3.5 (5.3)
Retained earnings 75.4 67.1
106.1 88.3
Non-controlling interests 0.8 0.8
TOTAL EQUITY 106.9 89.1
XP Power Limited
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2016
£ Millions Note 2016 2015
Cash flows from operating activities
Profit for the year 21.5 19.9
Adjustments for
-Income tax expense 6.3 5.5
-Amortisation and depreciation 4.6 3.8
-Finance charge 0.2 0.2
-ESOP expenses 0.3 0.1
-Loss/(gain) on fair valuation of derivative financial instruments 0.2 (0.2)
-Unrealised currency translation loss 5.0 1.0
Change in working capital, net of effects from acquisitions:
-Inventories (3.5) (2.8)
-Trade and other receivables (4.0) (1.5)
-Trade and other payables 1.5 (0.2)
-Provision for liabilities and other charges (0.1) (0.1)
Cash generated from operations 32.0 25.7
Income tax paid (4.1) (4.7)
Net cash generated from operating activities 27.9 21.0
Cash flows from investing activities
Acquisition of a subsidiary, net cash of cash acquired - (0.6)
Acquisition of a business, net cash of cash acquired - (7.7)
Purchases and construction of property, plant and equipment (2.6) (2.5)
Research and development expenditure capitalised (4.2) (2.9)
Proceeds from disposal of property, plant and equipment 0.1 -
ESOP loans repaid - 0.2
Net cash used in investing activities (6.7) (13.5)
Cash flows from financing activities
(Repayment of borrowings)/proceeds from borrowings (3.7) 8.0
Sale of treasury shares 0.3 0.3
Purchase of treasury shares by ESOP (0.1) (0.3)
Interest paid (0.2) (0.1)
Dividend paid to equity holders of the Company (12.9) (12.0)
Dividend paid to non-controlling interests (0.2) (0.2)
Net cash used in financing activities (16.8) (4.3)
Net increase in cash and cash equivalents 4.4 3.2
Cash and cash equivalents at beginning of financial year 4.3 1.3
Effects of currency translation on cash and cash equivalents 0.5 (0.2)
Cash and cash equivalents at end of financial year 9.2 4.3
Notes to the Annual Results Statement
For the year ended 31 December 2016
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 geographical segmentation is as follows:
£ Millions 2016 2015
Revenue
Europe 49.4 45.1
North America 68.6 55.7
Asia 11.8 8.9
Total Revenue 129.8 109.7
Segment result
Europe 11.6 6.7
North America 21.6 14.6
Asia 3.5 1.4
Segment result 36.7 22.7
Research and development (5.9) (5.8)
Finance charge (0.2) (0.2)
Corporate (cost)/recovery from operating segment (2.8) 8.7
Profit before income tax 27.8 25.4
Income tax expense (6.3) (5.5)
Profit for the year 21.5 19.9
Analysis by end market
The revenue by end market was as follows:
Year to 31 December 2016 Year to 31 December 2015
North North
£ Millions Europe America Asia Total Europe America Asia Total
Technology 7.1 21.4 3.6 32.1 6.7 16.8 3.3 26.8
Industrial 29.6 23.7 6.5 59.8 27.1 17.6 3.9 48.6
Healthcare 12.7 23.5 1.7 37.9 11.3 21.3 1.7 34.3
Total 49.4 68.6 11.8 129.8 45.1 55.7 8.9 109.7
3. Income taxes
£ Millions 2016 2015
Singapore corporation tax
- current year 2.6 1.6
- over-provision in prior financial year (0.1) -
Overseas corporation tax
- current year 3.5 2.8
- over-provision in prior financial year (0.2) (0.2)
Current income tax 5.8 4.2
Deferred income tax
- current year 0.6 0.8
- (over)/under-provision in prior financial year (0.1) 0.5
Income tax expense 6.3 5.5
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 2016 2015
Profit before tax 27.8 25.4
Tax on profit at standard Singapore tax rate of 17% 4.7 4.3
Tax incentives (0.4) (0.7)
Higher rates of overseas corporation tax 2.4 1.7
Deduction for loss on employee share options - (0.1)
Adjustment in respect of prior year (0.4) 0.3
Income tax expense 6.3 5.5
4. Dividends
Amounts recognised as distributions to equity holders in the period:
2016 2015
Pence per share £ Millions Pence per share £ Millions
Prior year third quarter dividend paid 15.0 * 2.8 14.0 2.7
Prior year final dividend paid 24.0 * 4.6 22.0 4.2
First quarter dividend paid 14.0 ^ 2.6 13.0 * 2.4
Second quarter dividend paid 15.0 ^ 2.9 14.0 * 2.7
Total 68.0 12.9 63.0 12.0
* Dividends in respect of 2015 (66.0p)
^ Dividends in respect of 2016 (71.0p)
The third quarter dividend of 16.0 pence per share was paid on 12 January
2017. The proposed final dividend of 26.0 pence per share for the year ended
31 December 2016 is subject to approval by Shareholders at the Annual General
Meeting scheduled for 19 April 2017 and has not been included as a liability
in these financial statements. It is proposed that the final dividend be
paid on 21 April 2017 to members on the register as at 17 March 2017.
5. Earnings per share
The calculations of the basic and diluted earnings per share attributable to
the ordinary equity holders of the Company are based on the following data:
£ Millions 2016 2015
Earnings
Earnings for the purposes of basic and diluted earnings per share (profit for the year attributable to equity shareholers of the parent) 21.3 19.7
Amortisation of intangibles associated with acquisitions 0.4 -
Exceptional reorganisation 0.4 0.3
Adjusted Earnings for earnings per share 22.1 19.7
Number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands) 19,015 18,997
Effect of potentially dilutive share options (thousands) 147 175
Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 19,162 19,172
Earnings per share from operations
Basic 112.0p 103.7p
Diluted 111.2p 102.8p
Diluted adjusted 115.3p 104.3p
6. Borrowings
The borrowings are repayable as follows:
£ Millions 2016 2015
On demand or within one year 5.5 4.0
In the second year - 4.6
Total 5.5 8.6
The other principal features of the Group's borrowings are as follows:
1. Bank overdrafts are repayable on demand. The bank overdrafts are
secured on the assets of the Group. At 31 December 2016, the Group had an
overdraft of £Nil million (2015: £0.6 million). In December 2016, the Group
renewed its annual working capital facility to US$7.5 million (2015: US$12.5
million). The facility is priced at the Bank of England base rate plus a
margin of 1.5%. Bank of Scotland PLC (BOS) provides the facility.
2. The Group has a term loan facility of US$12.0 million (£8.0 million)
with BOS with quarterly repayments of US$1.7 million commenced in June 2016
and ending in December 2017. The term loan is priced at LIBOR plus a margin
of 0.95% (2015: priced at LIBOR plus a margin of 0.95%).
3. The Group has pledged all assets as collateral to secure banking
facilities granted to the Group by BOS.
4. Management assessed all loan covenants have been complied with as of 31
December 2016.
7. Deferred consideration
The Group owns 84.0% (2015: 84.0%) of the shares of Powersolve Electronics
Limited (“Powersolve”) and had entered into an amended agreement on 29
October 2016 to purchase the remaining 16.0% of the shares in 2017 and 2022.
The Group will acquire 5.9% of Powersolve’s shares in early 2017 and the
remaining 10.1% in early 2022. The Group owns 51% (2015: 51%) of the shares of
Hanpower Co. Ltd (“Hanpower”) and had entered into an agreement on 20 May
2015 to purchase additional 15.0% of the shares in 2020 and another 15.0% of
the shares in 2025.
The commitment to purchase the additional ownership has been accounted for as
deferred consideration and is calculated based on the expected future payment
which will be based on a predefined multiple of the earnings for 3 years.
8. Prior year comparatives
In accordance with IFRS 3 Business Combinations, the management has assessed
the fair value of the identified intangible assets. Accordingly, goodwill
recognised last year has now been adjusted to reflect the revised fair value
of the intangible assets.
The previously reported goodwill as at 31 December 2015 is £36.3 million. The
restated goodwill as at 31 December 2015 is £35.9 million, reflecting an
adjustment of (£0.4) million.
The previously reported intangible assets as at 31 December 2015 is £11.9
million. The restated intangible asset as at 31 December 2015 is £12.3
million, reflecting an adjustment of £0.4 million in customer relationship.
9. Principal risks and uncertainties
Board Responsibility
Like many other international businesses the Group is exposed to a number of
risks which may have a material effect on its financial performance. The Board
has overall responsibility for the management of risk and sets aside time at
its meetings to identify and address risks.
Exposure to exchange rate fluctuations
The Group deals in many currencies for both its purchases and sales including
US Dollars, Euro and its reporting currency Pounds Sterling. In particular,
North America represents an important geographic market for the Group where
virtually all the revenues are denominated in US Dollars. The Group also
sources components in US Dollars and the Chinese Yuan. The Group therefore has
an exposure to foreign currency fluctuations. This could lead to material
adverse movements in reported earnings.
Risk mitigation – The Group reviews balance sheet and cash flow currency
exposures and where considered appropriate uses forward exchange contracts to
hedge these exposures. Any forward contract requires the approval of both the
Chief Executive and Finance Director.
Competition from new market entrants and new technologies
The power supply market is diverse and competitive. The Directors believe that
the development of new technologies could give rise to significant new
competition to the Group, which may have a material effect on its business. At
the lower end of the Group’s target market, in terms of both power range and
program size, the barriers to entry are low and there is, therefore, a risk
that competition could quickly increase particularly from emerging low cost
manufacturers in Asia.
Risk mitigation – The Group reviews activities of its competition, in
particular product releases, and stays up-to-date with new technological
advances in our industry especially those relating to new components and
materials. The Group also tries to keep its cost base competitive by operating
in low cost geographies where appropriate.
Disruption of one of our manufacturing facilities
An event that results in the temporary or permanent loss of a manufacturing
facility would be a serious issue. As the Group manufactures 73% of revenues
this would undoubtedly cause at least a short term loss of revenues and
profits and disruption to our customers and therefore damage to reputation.
Risk mitigation – We now have two facilities (China and Vietnam) where we
are able to produce power supplies. However, currently only certain series can
be produced in both facilities.
We have disaster recovery plans in place for both facilities.
We have also undertaken a risk review to the manufacturing management to
identify and assess risks which could cause a serious disruption to
manufacturing and then identified and implemented actions to reduce or
mitigate these risks where possible.
Dependence on key personnel
The future success of the Group is substantially dependent on the continued
services and continuing contributions of its Directors, Senior Management and
other key personnel. The loss of the services of any of their respective
Executive Officers or other key employees could have a material adverse
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