REG-XP Power Ltd: Half-year Report <Origin Href="QuoteRef">XPP.L</Origin> - Part 2
31/07/2017 07:05
- Part 2: For the preceding part double click ID:nPRrSBA5Da
0.2 (0.2)
Purchases of inventories 36.9 19.3
Changes in inventories 0.8 4.9
Fee payable to the Group’s auditor for audit of the Group’s accounts 0.2 0.2
Fee payable to other audit firms for audit related services - -
Tax fees payable to other firms for services provided to the Group - -
Rent/lease expense 0.8 0.7
Finance charge 0.1 0.1
Other charges 24.5 20.0
Total 65.8 47.4
Included in the above is net research and development expenditure as follows:
£ Millions Six months ended 30 June 2017 (Unaudited) Six months ended 30 June 2016 (Unaudited)
Gross research and development expenditure 5.5 3.8
Capitalisation of research and development expenditure (2.0) (2.0)
Amortisation of development expenditure capitalised 1.2 1.0
Net research and development expenditure 4.7 2.8
7. Taxation
Income tax expense is recognised based on management’s best
estimate of the weighted average annual income tax expected for the full
financial year. The estimated effective annual tax rate used for 2017 is 22.2%
(2016: 22.5%).
£ Millions Six months ended 30 June 2017 (Unaudited) Six months ended 30 June 2016 (Unaudited)
Singapore corporation tax 2.2 1.3
Overseas corporation tax 1.0 1.6
Total taxation 3.2 2.9
8. Dividends
Amounts recognised as distributions to equity holders of the
Company in the period:
Six months ended 30 June 2017 (Unaudited) Six months ended 30 June 2016 (Unaudited)
Pence per share £ Millions Pence per share £ Millions
Prior year 3 (rd)quarter dividend paid 16.0 3.0 15.0 2.8
Prior year final dividend paid 26.0 5.0 24.0 4.6
Total 42.0 8.0 39.0 7.4
The dividends paid recognised in the interim financial statements relate to
the third quarter and final dividends for 2016.
The first quarterly dividend of 15 pence per share (2016: 14 pence) was paid
on 10 July 2017. A second quarterly dividend of 16 pence per share (2016: 15
pence) will be paid on 12 October 2017 to shareholders on the register at 15
September 2017.
9. Earnings per share
Earnings per share attributable to equity holders of the company
arise from continuing operations as follows:
£ Millions Six months ended 30 June 2017 (Unaudited) Six months ended 30 June 2016 (Unaudited)
Earnings
Earnings for the purposes of basic and diluted earnings per share (profit for the period attributable to equity shareholders of the company) 10.9 9.8
Amortisation of intangibles associated with acquisitions 0.1 0.1
Cost associated with abortive acquisitions 2.8 0.1
Tax deduction associated with abortive acquisitions (0.8) -
Earnings for adjusted earnings per share 13.0 10.0
Number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands) 19,052 19,011
Effect of potentially dilutive share options (thousands) 274 182
Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 19,326 19,193
Earnings per share from operations
Basic 57.2p 51.6p
Diluted 56.4p 51.1p
Adjusted 67.3p 52.2p
The effective tax rate applied to derive the diluted adjusted
earnings per share is 23%. This is the rate we currently expect for the year
ended 31 December 2017 if there have not been any abortive acquisition costs.
10. Intangible assets
Intangible assets comprises trademarks, brand and technology, customer
contracts, non-contractual customer relationships and development expenditure
capitalised when it meets the criteria laid out in IAS 38 Intangible Assets.
11. Cash and cash equivalents
For the purpose of presenting the consolidated cash flow statement, the
consolidated cash and cash equivalents comprise the following:
£ Millions Six months ended 30 June 2017 (Unaudited) Six months ended 30 June 2016 (Unaudited)
Cash and bank balances 11.3 5.8
Less: Bank overdrafts (0.6) (4.0)
Cash and cash equivalents per consolidated cash flow statement 10.7 1.8
Reconciliation to free cash flow:
Net cash provided by operating activities 16.4 9.2
Purchases and construction of property, plant and equipment (2.0) (1.2)
Capitalisation of research and development expenditure (2.0) (2.0)
Interest paid - (0.1)
Free cash flow 12.4 5.9
12. Borrowings, bank loans and overdraft
£ Millions 30 June 2017 (Unaudited) 31 December 2016 30 June 2016 (Unaudited)
Non-current - - 2.6
Current 3.3 5.5 9.2
Total 3.3 5.5 11.8
13. Currency Impact
We report in Pounds Sterling (GBP) but have significant revenues and costs as
well as assets and liabilities that are denominated in United States Dollars
(USD). The table below sets out the prevailing exchange rates in the periods
reported.
First half 2017 First half 2016 % Change 30 June 2017 31 December 2016 30 June 2016
Average Average Period end Period end Period end
USD/GBP 1.26 1.44 -12.5% 1.27 1.24 1.33
EUR/GBP 1.17 1.30 -10.0% 1.14 1.19 1.20
Approximately 81% of the Group’s revenues are invoiced in USD so the change
in the USD to GBP exchange rate has a significant effect on reported revenue
in GBP. However, as the majority of our cost of goods sold and operating
expenses are also denominated in USD, the change in profit before tax with the
USD to GBP exchange rate is relatively minor. The impact of changes in the key
exchange rates from the first half of 2016 to the first half of 2017 are
summarised as follows:
£ Millions USD EUR
Impact on revenues 8.1 0.7
Impact on profit before tax 1.5 0.1
Impact on net debt 0.3 -
14. Risks and uncertainties
Like many other international businesses the Group is exposed to a number of
risks and uncertainties which might have a material effect on its financial
performance. These include:
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 75% 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.
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.
Shortage, non-availability or technical fault with regard to key electronic
components
The Group is reliant on the supply, availability and reliability of key
electronic components. If there is a shortage, non-availability or technical
fault with any of the key electronic components this may impair the Group’s
ability to operate its business efficiently and lead to potential disruption
to its operations and revenues.
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.
Fluctuations of revenues, expenses and operating results due to an economic
shock
The revenues, expenses and operating results of the Group could vary
significantly from period to period as a result of a variety of factors, some
of which are outside its control. These factors include general economic
conditions; adverse movements in interest rates; conditions specific to the
market; seasonal trends in revenues, capital expenditure and other costs 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.
Dependence on of key customers/suppliers
The Group is dependent on retaining its key customers and suppliers. Should
the Group lose a number of its key customers or key suppliers, this could have
a material impact on the Group’s financial condition and results of
operations. However, for the six months ended 30 June 2017, no one customer
accounted for more than 10% of revenue.
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.
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 effective tax rate could therefore fluctuate over time and have an
impact on earnings and potentially its share price.
14. Risks and uncertainties (continued)
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 have an effect on the Group’s
revenues, results of operations and financial condition.
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.
Exposure to exchange rate fluctuations
The Group deals in many currencies for both its purchases and sales including
US Dollars, Euros 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 Renminbi. The Group therefore
has an exposure to foreign currency fluctuations. This could lead to material
adverse movements in reported earnings.
15. Directors’ responsibility statement
The interim results were approved by the Board of Directors on 31
July 2017.
The Directors confirm that to the best of their knowledge that:
· The unaudited interim results have been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the European Union; and
· The interim results include a fair view of the information
required by DTR 4.2.7 (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year) and DTR 4.2.8 (disclosure of related party
transactions and changes therein).
The Directors of XP Power Limited are as follows:
James Peters Non-Executive Chairman
Duncan Penny Chief Executive
Mike Laver President, World Wide Sales and Marketing
Jonathan Rhodes Finance Director
Andy Sng Executive Vice President, Asia
Terry Twigger Senior Non-Executive Director
Peter Bucher Non-Executive Director
Polly Williams Non-Executive Director
31 July 2017
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