REG-XP Power Ltd: Half-year Report
03/08/2020 07:05
3 August 2020
XP Power Limited
(“XP Power” or “the Group” or the “Company”)
Interim Results for the six months ended 30 June 2020
XP Power, one of the world's leading developers and manufacturers of critical
power control solutions for the electronics industry, today announces its
unaudited interim results for the six-month period ended 30 June 2020.
Six months ended Six months ended
30 June 2020 30 June 2019
Change
Highlights
Order intake £145.8m £100.6m +45%
Revenue Turnover £105.1m £98.9m +6%
Gross margin 44.9% 44.6% +30bps
Interim dividend per share (Q1 + Q2) 18.0p 35.0p -49%
Adjusted
Adjusted operating profit (1) £18.0m £18.2m -1%
Adjusted profit before income tax (1) £17.0m £16.6m +2%
Adjusted diluted earnings per share (1) 70.2p 69.2p +1%
Reported
Cash generated from operations £21.5m £25.2m -15%
Net debt £34.4m £41.3m (2) -17%
Profit before tax £10.3m £12.9m -20%
Profit attributable to equity holders £8.1m £10.3m -21%
Diluted earnings per share 41.2p 52.8p -22%
(1)For details on adjusted measures refer to note 5 and note 8 of the
condensed consolidated financial statements
(2)Net debt as at 31 December 2019
* Order intake increased by 45% to £145.8 million (41% increase at constant
currency) due to recovery in the Semiconductor Equipment Manufacturing sector
and COVID-19 related demand from our Healthcare customers. We enter H2 2020
with a record order book of £138.2 million (December 2019: £98.2 million).
* Revenue grew 6% to £105.1 million (4% increase in constant currency).
* Own-design XP product revenues increased 10% on a reported basis to a record
£84.9 million (H1 2019: £77.3 million), representing 81% of total revenues
(H1 2019: 78%).
* Gross margin increased slightly to 44.9% (H1 2019: 44.6%) due to changes in
product and customer mix partially offset by costs relating to COVID-19.
* Expansion of our Vietnam manufacturing facility, which was completed in
2019, enabled the Group to demonstrate the resilience of its supply chain and
maintain product deliveries to customers, despite the temporary shutdown of
our Chinese factory in response to COVID-19.
* Cash generated from operations down 15% to £21.5 million (H1 2019: £25.2
million) due to investment in working capital to fulfil increased demand.
* Net debt decreased by 17% to £34.4 million (December 2019: £41.3 million)
reflecting good underlying cash generation and the decision not to pay a final
dividend.
* Dividend reinstated from the second quarter of 2020 at 18.0 pence per share
(aggregated Q1 and Q2 2019: 35.0 pence per share), reflecting the confidence
the Board has in the Group’s longer-term prospects.
James Peters, Chairman, commented:
“Protecting the safety and wellbeing of our colleagues has been our top
priority throughout the first half of 2020 and I would like to thank them all
for their commitment across this period. The strength of the Group’s first
half performance is testament to their dedication and skill.”
“Once again, the Group has performed extremely well in a period of
macroeconomic difficulty, underlining our resilience and the structural growth
end markets we address. We have produced a good set of results while
continuing to invest in long-term growth, maintaining supply of product to our
customers, generating cash and without the need for government support. In
light of this resilient performance, I am also pleased to report that we are
in a position to reinstate dividend payments with the second quarter
dividend.”
“We enter the second half of 2020 with a record customer order backlog due
to the strong order intake from our Semiconductor Equipment Manufacturing and
Healthcare customers and have expanded our capacity in both China and Vietnam
to fulfil demand. These orders underpin our expectation of further revenue
growth in the second half, although we remain conscious of potential risks
arising from any second wave of COVID-19, global macroeconomic challenges and
ongoing trade tensions.”
“The COVID-19 pandemic is accelerating the digitisation of the global
economy, bringing into focus the importance of resilient supply chains and
demonstrating the need for increased healthcare spending throughout the world.
XP Power is well positioned to benefit from these trends and continue to grow
its market share. With a proven strategy, exposure to attractive customers
and market sectors, strong design win momentum and an expanded product
portfolio, the Board is excited about the future of the Group.”
XP Power is hosting a presentation for analysts this morning at 0900 (BST).
A live webcast of the presentation will be available at
www.investislive.com/xppowerplc/5f05cb218ade181000696d93/dssx and a recording
of the webcast will be available at www.xppowerplc.com later in the day.
Enquiries:
XP
Power
Duncan Penny, Chief Executive Officer +44 (0)118 984 5515
Gavin Griggs, Chief Financial Officer +44 (0)118 984
5515
Citigate Dewe
Rogerson
Kevin Smith/Jos Bieneman +44 (0)207 638 9571
Note to editors
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 Electronics (circa 34% of
revenue), Healthcare (circa 27% of revenue), Semiconductor Equipment
Manufacturing (circa 27% of revenue) and Technology (circa 12% of revenue)
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 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 xppower.com
3 August 2020
XP Power Limited
(“XP”, “XP Power” or “the Group”)
Interim Results for the six months ended 30 June 2020
INTERIM STATEMENT
Overview
The first half of 2020 was a period dominated by the exceptional challenges of
a global health crisis. Our top priority throughout has been to protect the
health of our colleagues and I would like to thank them all for their
commitment and adaptability across this period.
The Group has performed extremely well in a period of unprecedented difficulty
demonstrating, once again, the resiliency of our business model. We have
navigated the challenges of the COVID-19 pandemic well with the clear
prioritisation of:
1. Ensuring the safety and wellbeing of all our colleagues;
2. Keeping our customers supplied with product; and
3. Preserving our cash.
We have continued to invest in the business through this difficult period and
have achieved this result without the need to furlough staff, reduce our
workforce or take advantage of government COVID-19 financing (with the
exception of mandatory financial aid provided by the Singapore government
which was provided to all companies regardless of need) or other financial
concessions, while growing our revenues and earnings. Due to the uncertainties
caused by COVID-19 the Board took the decision to cancel the final dividend
for 2019 and the first quarter dividend for 2020. We are also pleased to
report that we are in a position to recommence dividend payments from the
second quarter of 2020 onwards.
The Semiconductor Equipment Manufacturing sector, which had started to recover
in terms of order intake in the fourth quarter of 2019, continued to perform
strongly in the first half of 2020. Customers in this sector are expecting
demand to hold up in the second half of 2020 and into 2021. In addition, we
benefitted from unprecedented demand from our Healthcare customers in response
to the COVID-19 pandemic. Our exposure to these two sectors more than made up
for weakness in other areas.
The expansion of our Vietnamese production facility was fundamental in
mitigating the effects of Section 301 Tariffs in 2019 and it has once again
shown its value in 2020. Our Vietnam factory allowed us to keep product
flowing to our customers while our Chinese facility was not able to operate
due to COVID-19 restrictions. Our diversified manufacturing footprint and the
resilience of our supply chain is recognised as an important strategic
differentiator by our key customers, many of whom are increasingly concerned
about USA/China trade relations.
With a proven strategy, exposure to attractive customers and market sectors,
strong design win momentum and an expanded product portfolio, the Board
remains positive regarding the future of the Group.
COVID-19
Operations
We are continuing to monitor the global situation in respect of COVID-19
closely.
In common with many other facilities in China, our factory in Kunshan was not
able to re-open at the end of January following the Chinese New Year holiday
due to restrictions relating to COVID-19. As an essential supplier of
components for critical healthcare equipment we were able to open earlier than
most, on 27 February 2020, but with a significantly reduced headcount as many
staff were not able to travel back to Kunshan. As China relaxed travel
restrictions our people were able to gradually return to Kunshan during March
2020 and the supply chain in China began to recover. In contrast, the impact
of COVID-19 in Vietnam has been relatively minor and our facility opened after
the Lunar New Year holiday as expected on 1 February 2020. However, Vietnam is
dependent on the China supply chain for a number of fabricated parts, so
capacity was constrained initially.
We are pleased to report that during the second quarter the China supply chain
has been operating normally. Our production volumes out of China and Vietnam
began to ramp in the second quarter as reliable supply of components and other
materials was re-established. We have expanded headcount in both our
production facilities and invested in capital equipment in Vietnam to increase
production for the third quarter and beyond. There has been a significant
further ramp up in production output during July. To date, component supply
has been resilient, but we are monitoring the supply chain closely.
Our production facilities in North America and logistics facilities around the
world have been able to operate normally with epidemic and prevention controls
in place in line with all public health advice.
Balance sheet and liquidity
In response to the COVID-19 pandemic we have prioritised the preservation of
cash and the availability of sufficient liquidity to manage potential
short-term downside risks. As a result, we withdrew the 2019 final dividend
which was expected to have a cash outflow of £6.9 million in April 2020 and
the first quarter dividend for 2020. We continue to manage our cash tightly,
whilst still investing in working capital and our manufacturing facilities to
meet the increased demand from customers during the first half of 2020.
At 30 June 2020 the Group had available liquidity of c.£61 million through
bank facilities and cash balances.
The Group’s borrowings consist of a revolving credit facility (RCF) with
committed facilities of US$120 million and a US$60 million accordion option.
The RCF has a term up to November 2023, with an option to extend for a further
year. At 30 June 2020 the Group has drawn down on US$60 million of the
facility. The Group has continued to operate with significant headroom against
the RCF financial covenants during the interim period.
At 30 June 2020 net debt was £34.4 million, compared with £41.3 million at
31 December 2019 and net debt to Adjusted EBITDA was 0.74x at 30 June 2020,
compared with 0.91x at 31 December 2019.
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. The Group has applied a consistent strategy of moving up the value chain
and our growth derives in part from the targeting of key customers. Once we
are approved to supply these larger customers, we have a strong track record
of successfully gaining a share of their available business.
XP Power supplies power control solutions to Original Equipment Manufacturers
(“OEMs”) who supply the Healthcare, Industrial Electronics, Semiconductor
Equipment Manufacturing and Technology markets with high value, high
reliability products. The increasing importance of energy efficiency for
environmental, reliability and economic reasons; the increasing demand for
digital connectivity of power conversion products; the necessity for ever
smaller products; the accelerating rate of technological change; and the
increasing proliferation of electronic equipment and semiconductor devices,
have established a strong foundation for growth in demand for XP Power’s
products. If anything, the COVID-19 pandemic has accelerated these trends.
We also continue to expand the breadth of our product portfolio, both
organically and by acquisition, in what remains a highly fragmented sector,
therefore enabling us to increase our addressable market. Since the end of
2015, we have completed three acquisitions which have allowed us to expand
into the high voltage and radio frequency (RF) power market sectors increasing
the size of our addressable market by around US$2.0 billion (75%).
Our acquisition of the Glassman High Voltage business in May 2018 opened up
the circa US$500 million high power, high voltage market for the Group. The
combination of the XP Power sales force with the engineering and manufacturing
capability at Glassman is compelling, and we are finding good opportunities
for this product line.
We now have an enviable product portfolio of over 300 product families from
low voltage to 500 kilo Volts at power levels up to 200 kilo Watts. This
breadth of range, combined with our excellent customer support and Engineering
Services capabilities, makes us the ideal choice of power solutions provider
to our target customers.
The challenges of managing the effects of COVID-19 have not diverted us from
our strategic path and we continue to invest for the medium and longer term.
We continued to execute well against our strategy in the period, gaining
further design wins from our newer product introductions, particularly in
higher power applications, and our increased focus on engineering solutions
which provide more value to our customers. The successful implementation of
our strategy continues to drive market share gains and the strength of our new
programme wins is encouraging. We continue to focus our own engineering
resources on high-power applications and address the lower applications
through third party products. It was for this reason that we took the decision
in January to close our UK design centre in Fyfield, Essex, which was focused
on low power low voltage products. Costs relating to the closure were £1.7
million which has been treated as restructuring costs within specific items.
These costs include the write down of capitalised product development work of
£1.2 million in progress at the time of the site closure.
Our value proposition to customers is to reduce their overall costs 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.
Trading and Financial Review
On a statutory basis, revenue was £105.1 million (H1 2019:
£98.9 million), representing growth of 6%. Statutory operating profit
was £11.3 million (H1 2019: £14.5 million), a decrease of 22% against the
prior year, with operating margin at 10.8% (H1 2019: 14.7%) as a result of
increased investment in the business. This was achieved despite the
disruptive effects of COVID-19 on our factory in China and supply chain during
February and March 2020. Net finance costs were £1.0 million (H1 2019:
£1.6 million), resulting in reported profit before
tax of £10.3 million (H1 2019: £12.9 million). Income tax expense was
£2.1 million (H1 2019: £2.5 million), equivalent to an effective tax rate
of 20.4% (H1 2019: 19.4%). Basic earnings per share were 42.0 pence (H1
2019: 53.8 pence), a decrease of 22%.
Order Intake
Order intake of £145.8 million (H1 2019: £100.6 million) was up 45% on a
reported basis. The growth was driven by unprecedented demand for healthcare
equipment due to COVID-19 and a cyclical recovery in the Semiconductor
Equipment Manufacturing sector which began in the fourth quarter of 2019.
Given that the majority of orders are placed in US Dollars, the reported
results reflect the impact of the stronger Sterling: US Dollar exchange rate
of 1.26 in 2020, compared to 1.29 in the prior year. When adjusted to
constant currency, 2020 orders were up 41% compared with the prior period.
In constant currency, compared to the same period a year ago, Asia orders
increased by 13%, European orders were up 17%, while North America orders grew
by 62%.
Order intake in the first half of 2020 significantly exceeded revenues with a
resultant book-to-bill ratio of 1.39 (H1 2019: 1.02). We enter the second
half of the current year with a record order book of £138.2 million (December
2019: £98.2 million).
We expect significant order backlog to unwind to more normal levels in the
second half of the year as shipments from our factories increase as components
and raw materials are received.
Revenue Performance
Reported revenues grew by 6% to £105.1 million in the six months to 30 June
2020 compared to £98.9 million in the same period a year ago. Revenue
adjusted for constant currency grew by 4% compared to 2019.
Sector Performance
The sector breakdown for the first half of 2020 are very different to the
prior year due to the recovery of Semiconductor Equipment Manufacturing and
the COVID-19 related demand from some of our Healthcare customers.
Semiconductor Equipment Manufacturing customers showed a significant increase
in revenues of 56% over the prior year to US$35.3 million (H1 2019: US$22.7
million) as the sector recovered, and we benefitted from market share gains as
new programmes entered production. Design wins in this sector have been
particularly strong over the last few years aided by our move up both the
power and voltage scale, facilitated by the acquisitions, and we are starting
to see the benefit from these new programmes. As previously reported, we
regard this sector as having highly attractive growth prospects which are
being driven by the growth of Big Data, Artificial Intelligence, autonomous
vehicles, the Internet of Things and the roll out of 5G. The acceleration of
digitisation in many aspects of our world, and the rise in home working caused
by the COVID-19 pandemic, are reinforcing our view on the strength of these
trends and our presence in the Semiconductor Equipment Manufacturing sector
gives us significant exposure to them.
The Semiconductor Equipment Manufacturing sector is known for its cyclicality,
but we note that the last down cycle has been significantly shorter than past
down cycles and the peak to trough for our sector revenues lower in amplitude
than prior cycles. We attribute this to the pervasive digitisation of so many
aspects of our lives, driven by the multiple end market drivers set out above.
We remain excited by our ability to grow revenues in this sector.
Revenue from Healthcare customers grew by 16% over the prior period to US$35.1
million (H1 2019: US$30.2 million) as certain customer programmes saw a
significant increase in demand due to COVID-19. As countries acted quickly to
equip intensive care units to treat COVID-19 patients, the demand for
ventilators, Continuous Positive Airway Pressure (CPAP) machines, hospital
beds, patient monitors, drug delivery systems, suction pumps, specialist
ultrasound and lung X-ray applications increased significantly. The bulk of
the orders received for these devices are scheduled to be delivered in the
second half of 2020. By contrast other applications such as robotic surgical
tools and endoscopy showed declines compared to the prior period as the sector
focused on treatment of the pandemic. We expect these non COVID-19 orders to
recover to more normal levels in the second half of 2020.
The strength in Semiconductor Equipment Manufacturing and Healthcare sectors
revenues was partially offset by a significant revenue decline in Industrial
Electronics, including the broadline distribution channels we partner with,
which decreased by 24% to US$46.4 million (H1 2019: US$60.9 million).
Industrial Electronics is our most diverse sector and one in which we have
very few large customers, making it the most difficult to analyse. Our view is
that many of these smaller customers have seen a decline in their end markets
or have had other supply chain shortages due to the effects of the COVID-19
pandemic. The revenue from the broadline distribution channels has declined by
13% compared to the prior period as these channels reduced their inventories
of our products. By contrast their “Point of Sale” of our products have
held up well growing 11% compared to the prior period but has shown noticeable
deterioration in June.
Revenues from Technology customers grew by 9% to US$15.1 million (H1 2019:
US$13.9 million) due to strength from a customer producing burn-in test
equipment.
Semiconductor Equipment Manufacturing represented 27% (H1 2019: 17%),
Healthcare represented 27% (H1 2019: 24%), Industrial Electronics represented
34% (H1 2019: 48%), and Technology represented 12% (H1 2019: 11%) of total
revenues. Our customer base remains highly diversified with the largest
customer accounting for only 14% of revenue (H1 2019: 9%), spread over 150
different programmes/part numbers.
XP Power’s expansion of its capabilities into higher voltage, higher power
and RF power applications has made us an attractive power solutions provider
to the many Healthcare and Semiconductor Equipment Manufacturing customers who
use these technologies and value our full-service engineering solutions
capability. There have been a number of exciting design wins for these
products during the first half of 2020, particularly in Asia.
Regional Performance
Revenues in North America were US$80.4 million (H1 2019: US$72.9 million), up
10% compared to the same period a year ago as the Semiconductor Equipment
Manufacturing sector continued its recovery.
Revenues in Europe were £29.9 million (H1 2019: £32.9 million), a decline of
9% on the same period a year ago as strength in Healthcare was offset by
weakness in the Industrial Electronics sector which declined 28% on the prior
period due to the effects of COVID-19 on demand and supply chains. While
difficult to quantify, there is also anecdotal evidence that some customers
built up buffer inventory in early 2019 to protect against any potential
adverse effects arising from a disorderly Brexit.
Revenues in Asia were US$14.1 million (H1 2019: US$12.5 million), up a healthy
13% compared with the same period a year ago, driven by the Technology sector
and strong Healthcare business.
Gross Margin
Gross margin in the first half of 2020 was 44.9% (H1 2019: 44.6%), a 30 bps
increase on a reported basis and 20 bps in constant currency. The 20 bps
increase in gross margin in constant currency resulted from favourable sector
and regional mix offset by increased costs relating to COVID-19, including
costs incurred when Kunshan was not operating and the impact of increased
unrecovered freight costs. Whilst global air freight capacity was constrained
as a result of the global pandemic, demand increased as Personal Protective
Equipment (PPE) requirements surged resulting in significant air freight cost
increases. This was a short-term impact and whilst we have been working with
customers to recover some of this additional cost, we have also been seeing
reductions to the cost in recent weeks.
Adjusted Results
Throughout this Interim Results statement, 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
in particular on adjusted results rather than statutory results. There are a
number of items included in our statutory results which are considered by the
Board to be one-off in nature or not representative of the Group’s
performance and are thus excluded from adjusted results. The tables in note
5 show the full list of adjustments between statutory operating profit and
adjusted operating profit by business, as well as between statutory profit
before tax and adjusted profit before tax at Group level for both 2020 and
2019.
Adjusted Operating Expenses and Margins
Adjusted operating expenses in the first half were £29.5 million (H1 2019:
£25.9 million) after excluding £6.7 million of specific items (H1 2019:
£3.7 million).
The increase primarily relates to investment in headcount, mainly in our
customer support and engineering teams. Additional increases were seen in IT
costs as we continue to develop our infrastructure to support the future
growth of the business.
Due to the increased investment in operations adjusted operating profit was
£18.0 million, down marginally from the £18.2 million in H1 2019. Adjusted
operating margin of 17.1% was achieved in H1 2020, down 130bps from the 18.4%
in H1 2019.
Finance Cost
Net finance cost decreased to £1.0 million (H1 2019: £1.6 million) due to
a combination of decreased average borrowings and lower interest rates.
Interest cover was 22.9 times (H1 2019: 18.8 times) which is well above
the minimum required in our banking covenants. Interest cover is EBITDA as
a multiple of net interest expense as defined by our Revolving Credit
Facility.
Adjusted Profit before Tax
The Group generated adjusted profit before tax of £17.0 million (H1 2019:
£16.6 million), up 2% year-on-year.
Specific Items
In the first half of 2020, the Group incurred £6.7 million (H1 2019: £3.7
million) of specific items, which consisted of amortisation of intangible
assts due to business combinations of £1.6 million (H1 2019: £1.6 million),
£0.2 million of legal costs (H1 2019: £1.2 million), £1.5 million of ERP
system implementation costs (H1 2019: £0.5 million), £0.3 million of
acquisition related costs (H1 2019: £0.4 million), £2.2 million of
restructuring costs relating to the closure of a UK design centre and the
Minden production facility in North America with £1.2 million being product
development in progress which will not be continued (H1 2019: £nil) and £0.9
million of fair value adjustments on currency hedges. The legal costs relate
to a legal dispute in North America. The dispute is non-customer related and
is currently dormant.
Taxation
The tax charge for the period was £2.1 million (H1 2019: £2.5 million),
representing an effective tax rate of 20.4% (H1 2019: 19.4%). After
adjusting for specific items, the effective tax rate for the period was 18.2%
(H1 2019: 18.1%). The year on year increase is driven by geographic mix with
a greater percentage of profits being realised in higher tax rate
jurisdictions.
We currently expect our future effective tax rate to be in the range of 20% to
22% depending on the geographic distribution of our profits.
Operating Cash Flows and Net Debt
The Group generated net cash from operations of £21.5 million, down 15% from
the £25.2 million generated in the previous year. The lower level of
operating cash flows was a result of increased inventory levels to meet the
order intake demand. The Group expects inventory to decrease in the second
half of 2020.
Net debt was £34.4 million at 30 June 2020, compared with £41.3 million at
31 December 2019. The Group returned £3.8 million (H1 2019: £10.2 million)
to shareholders in the form of dividends during the first half of 2020.
Product Development
New products are fundamental to our revenue growth. The broader our product
offering, the higher the probability that we will have a product which will
work in the customer’s application, with or without a modification by our
engineering team. By expanding into high voltage and RF power in 2017 and
2018, we have increased our addressable market from around US$2.7 billion to
approximately US$4.7 billion.
The design-in cycles required by our customers to qualify the power converter
into their equipment and to gain the necessary safety agency approvals are
lengthy. Typically, we see a period of around 18 months, or even longer in
Healthcare, from first identifying a customer opportunity to receiving the
first production order. Revenue will then start to build from this point,
often peaking a number of years later. The positive aspect of this
characteristic is that our business has a strong annuity base where programmes
typically last seven to eight 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.
XP Power launched six new product families in the first half of 2020 (H1 2019:
nine). We continue to lead our industry in the introduction of high
efficiency, “green” products, with five of the new product families
released in the first half of 2020 having high efficiency and/or low stand-by
power. We are planning to release a much higher number of products in the
second half of 2020 including some with exciting new stage technology.
With larger customers continuing to reduce the number of vendors they deal
with, XP Power’s broad product offering, excellent global engineering
support, in-house manufacturing capability and industry-leading environmental
credentials leave the Group well-placed to secure further preferred supplier
agreements. The addition of RF power and high voltage, high power products
to our range via the acquisitions of Comdel and Glassman further enhances this
proposition. Combining this with our Engineering Services offering makes us
a compelling partner to our larger customers who come to us to provide leading
edge power solutions to power their complex applications.
Manufacturing Progress
We completed the construction of an extension to the factory on our existing
site in Vietnam in the first quarter of 2019, adding more than US$150 million
of manufacturing capacity per year and increasing our total Asian
manufacturing capacity to more than US$350 million per year. The move into
Vietnam, and the recently completed capacity expansion, have proved
particularly timely given the continued deterioration in trade relations
between China and the USA. The US Government implemented Section 301 tariffs
at a rate of 10% from September 2018 and increased these to 25% on 10 May
2019. Many of our competitors have Chinese based manufacturing facilities
which puts them at a significant commercial disadvantage if they are selling
into the USA. The ability to manufacture in Vietnam has become a compelling
value proposition to our customers wherever they are located.
The outbreak of COVID-19 has underlined the benefits of our diversified
manufacturing footprint as we were able to divert production from China to
Vietnam when COVID-19 severely disrupted the Chinese factory and supply chain
in February and March 2020. A number of our customers accelerated their
qualification processes to transfer production from our China facility to our
Vietnam facility to address the impact of Section 301 tariffs and COVID-19.
Our end objective is to provide a resilient and flexible supply chain with the
capability to manufacture the majority of products in both China and Vietnam.
This is a compelling offering to our customers as they have become more
focused on the security and certainty of supply following the COVID-19
pandemic.
During the first half of 2020, we have invested in additional equipment in
Vietnam to increase production line capacity and help deliver customer orders
scheduled for the third and fourth quarters. We will be investing in further
equipment in the third quarter to expand our test and burn-in capacity.
Vietnam is now qualified to produce a total of 2,239 different low voltage
products (H1 2019: 1,819), demonstrating our progress with the transfer of
production capabilities. In addition, the transfer of low power, high
voltage DC-DC modules, previously manufactured in Minden, Nevada, is nearing
completion and there are now more than 350 different high voltage modules
capable of being manufactured in Vietnam.
We expect this important strategic capability of having production facilities
in Vietnam and China to enable us to win more design slots with key
customers. A number of customers have already informed us that they will no
longer design-in products manufactured in China due to concerns over China/USA
trade tensions. Our Vietnamese facility would also continue to enjoy a cost
advantage over competitors with a predominantly Chinese manufacturing
footprint, even in the event that the Trump administration decides to levy
Section 301 tariffs on power converters produced in Vietnam.
Restructuring of Low Power, High Voltage Manufacturing and Transfer to Vietnam
In August 2019 we announced that we would close our manufacturing facility in
Minden, Nevada which produced our low power, high voltage DC-DC modules and
transfer production to our low-cost Vietnamese facility. Our plan was to
complete this transfer by June 2020 resulting in expected annualised cost
savings of approximately £4.0 million. Approximately £1.0-2.0 million of
these cost savings will be reinvested back into the business to expand and
strengthen our new product introduction team and transfer further products
from North America to Vietnam to generate further ongoing savings. While we
have made good progress the transfer process was constrained by travel
restrictions relating to the COVID-19 pandemic and increased demand from the
Semiconductor Equipment Manufacturing customers. We now expect the closure to
be complete in the third quarter of 2020.
The enlarged product transfer team will facilitate further transfers of
existing engineering services production from our facility in Sunnyvale,
California to Vietnam resulting in additional future savings, and support the
ongoing introduction of new standard products as they are launched,
We have incurred approximately £0.5 million in costs associated with the full
closure of Minden in the first half of 2020 which have been treated as a
specific item. We expect to incur approximately £0.5 million to complete the
transfer.
Capital Allocation and Dividend Policy
The Group will continue its disciplined approach to capital allocation,
prioritising maintaining a strong balance sheet and sufficient committed
facilities whilst it continues to focus on investing in the business to drive
organic growth. The Group will also invest in acquisitions where they
support the Group’s strategy.
Due to the uncertainties caused by COVID-19 the Board took the decision to
cancel the final dividend for 2019 and the first quarter dividend for 2020.
The Group’s strategic focus, and its well diversified revenue mix, both by
sector and geography, has ensured that it has performed resiliently throughout
the first half and enters the second half with a record order book.
Furthermore, the Group has not furloughed any employees or taken advantage of
any COVID-19 government loan schemes in any of the markets in which it
operates, with the exception of mandatory financial aid provided by the
Singaporean government. While our financial results have been adversely
affected by the supply chain disruption in China between the middle of January
and the end of March 2020 and the ongoing global disruption, the Group has
managed its cash position prudently and produced robust earnings in the first
half of 2020 and as at 30 June 2020 the Group had a Net Debt/Adjusted EBITDA
ratio of 0.74:1.
After careful consideration and taking account all of the above factors, the
Board believes it is appropriate for the Group to resume the payment of
dividends with effect from the second quarter of 2020. The Board does not
propose to pay the Q4 2019 and Q1 2020 dividends and will use the preserved
cash to reduce leverage and provide additional liquidity for the uncertainty
that may result from COVID-19 in the near term.
UK/EU trade
As previously reported, the Group analysed the implications of a no deal
Brexit and concluded that it would have limited operational implications. In
the first quarter of 2019, we implemented our contingency plan for a no deal
Brexit which involved transferring certain inventories held in support of 15
key accounts from our UK warehouse to our German warehouse. While we will
not be immune to any macroeconomic consequences of a no deal Brexit, we are
confident that the actions we have taken will prevent any internal operational
issues.
Sustainability – Environmental Impact and “Green” Products
XP Power has placed environmental, social and governance performance at the
heart of its operations both in terms of minimising the impact its activities
have on the environment and, importantly, in its product development strategy.
We are a member of the Responsible Business Alliance (RBA) and support its
rigorous code of conduct covering employee relations, health and safety
standards, environmental impact, business ethics and management systems. We
are proud to support the ethos of the RBA and of the United Nations
Sustainable Development Goals (SDG’s) many of which we are able to impact
positively.
We have adopted many environmentally friendly best practices such as using PV
Solar in our facilities, recycling of rainwater, use of low energy lighting
and recycling of the power we use to test our products. We are also active in
the communities in which we operate providing our people a day’s paid leave
to pursue charitable work. However, the biggest impact we can have on the
environment is continuing to develop products which consume less energy and
use less materials.
We have developed a class-leading portfolio of “green” products with
efficiencies of up to 95% and many of these products also have low stand-by
power (a feature to reduce the power consumed while the end equipment is not
operational but in stand-by mode). We continue to see strong uptake of these
products by our customers.
Outlook
Our first priority remains the health and safety of our colleagues, customers
and business partners.
The greater focus on the ability of supply chains to cope with adverse events
such as pandemics, natural disasters and trade tensions, has once again
allowed XP Power to demonstrate its resilience and this is well understood and
valued by our blue-chip customers. The pandemic has also resulted in an
acceleration of the digitisation of the global economy and increased
recognition that many countries require significant investment in their
healthcare systems. These trends, as well as the trend for increasing
connectivity in Industrial Electronics, are at the heart of our business and
should help us to continue to grow above market rates.
We enter the second half of 2020 with a record customer order backlog of
£138.2 million (H1 2019: £100.6 million) due to the strong order intake from
our Semiconductor Equipment Manufacturing and Healthcare customers. All our
facilities are fully operational and those employees who are able to work from
home are doing so effectively.
We expect that strength in the Semiconductor Equipment Manufacturing and
Healthcare sectors, as we deliver the orders received in the first half of
2020, will more than compensate for weakness in the Industrial Electronics
markets.
Our enhanced Vietnam manufacturing capability has positioned us well to
mitigate the impact of the COVID-19 pandemic, as it did for Section 301
tariffs in 2019. Our key customers recognise the resilience of our supply
chain, alongside our technical service and support, which drives more design
wins.
The Board expects further revenue growth in the second half of 2020, although
we remain conscious of potential risks arising from a second wave of COVID-19
and the resultant global macroeconomic challenges, and ongoing trade tensions.
As in prior periods of difficult macroeconomic conditions, we have weathered
the challenges of 2020 well to date and expect to exit the COVID-19 period in
a stronger position than when we entered. We believe we are well along the
path to achieving our vision of becoming the first-choice power solutions
provider to our existing and target customer base.
3 August 2020
Independent review report to XP Power Limited
Report on review of interim financial information
Introduction
We have reviewed the accompanying condensed consolidated financial information
of XP Power Limited (“the Company”) and its subsidiaries (“the Group”)
set out on pages 15 to 24, which comprise the condensed consolidated balance
sheet of the Group as at 30 June 2020, the condensed consolidated statements
of comprehensive income, changes in equity and cash flows for the 6-month
period then ended and the other explanatory notes. Management is responsible
for the preparation and presentation of this condensed consolidated interim
financial information in accordance with International Accounting Standard 34
Interim Financial Reporting as adopted by the European Union and the
Disclosure and Transparency Rules of the United Kingdom’s Financial Conduct
Authority. Our responsibility is to express a conclusion on this condensed
consolidated interim financial information based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410, Review of Interim Financial Information Performed by the
Independent Auditor of the Entity. A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the interim report for the
6-month period ended 30 June 2020, which comprise the “Interim Results”
set out on pages 1 to 3, “Interim Statement” set out on pages 4 to 13 and
“Risks and uncertainties” set out on pages 25 to 26, and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed consolidated interim financial
information.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the accompanying condensed consolidated interim financial
information is not prepared, in all material respects, in accordance with
International Accounting Standard 34 Interim Financial Reporting as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom’s Financial Conduct Authority.
PricewaterhouseCoopers LLP
Public Accountants and Chartered Accountants
Singapore,
3 August 2020
XP Power Limited
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2020
£ Millions Note Six months ended 30 June 2020 (Unaudited) Six months ended 30 June 2019 (Unaudited)
Revenue 5 105.1 98.9
Cost of sales (57.9) (54.8)
Gross profit 47.2 44.1
Other income 0.3 -
Expenses
Distribution and marketing (24.3) (20.3)
Administrative (3.3) (3.0)
Research and development (8.6) (6.3)
Operating profit 11.3 14.5
Finance charge (1.0) (1.6)
Profit before income tax 10.3 12.9
Income tax expense 6 (2.1) (2.5)
Profit after income tax 8.2 10.4
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges - *
Exchange differences on translation of foreign operations 6.0 (0.2)
6.0 (0.2)
Items that will not be reclassified subsequently to profit or loss:
Currency translation differences arising from consolidation * *
Other comprehensive income/(loss), net of tax 6.0 (0.2)
Total comprehensive income 14.2 10.2
Profit attributable to:
- Equity holders of the Company 8.1 10.3
- Non-controlling interests 0.1 0.1
8.2 10.4
Total comprehensive income attributable to :
- Equity holders of the Company 14.1 10.1
- Non-controlling interests 0.1 0.1
14.2 10.2
Earnings per share attributable to equity holders of the Company Pence per Share Pence per Share
Basic 8 42.0 53.8
Diluted 8 41.2 52.8
* Balance is less than £100,000.
The above condensed consolidated statement of comprehensive income should be
read in conjunction with the accompanying notes.
XP Power Limited
Condensed Consolidated Balance Sheet
As at 30 June 2020
£ Millions Note At 30 June 2020 (Unaudited) At 31 December 2019
ASSETS
Current assets
Corporate tax recoverable 1.6 2.0
Cash and cash equivalents 13.0 11.2
Inventories 55.6 44.1
Trade receivables 33.2 34.8
Other current assets 3.9 3.3
Derivative financial instruments - 0.6
Total current assets 107.3 96.0
Non-current assets
Goodwill 54.8 53.2
Intangible assets 9 48.8 46.4
Property, plant and equipment 30.9 29.3
Right-of-use assets 6.4 6.6
Deferred income tax assets 1.8 1.8
ESOP loans to employees 0.1 0.1
Total non-current assets 142.8 137.4
Total assets 250.1 233.4
LIABILITIES
Current liabilities
Current income tax liabilities 4.3 3.1
Trade and other payables 32.8 25.2
Derivative financial instruments 0.3 -
Lease liabilities 1.7 1.6
Accrued consideration - 0.5
Total current liabilities 39.1 30.4
Non-current liabilities
Accrued consideration 1.3 1.2
Borrowings 47.4 52.5
Deferred income tax liabilities 6.3 5.5
Provisions 0.1 0.1
Lease liabilities 4.5 4.8
Total non-current liabilities 59.6 64.1
Total liabilities 98.7 94.5
NET ASSETS 151.4 138.9
EQUITY
Equity attributable to equity holders of the Company
Share capital 27.2 27.2
Merger reserve 0.2 0.2
Share option reserve 4.2 3.9
Treasury shares reserve (0.1) (0.5)
Hedging reserve - -
Translation reserve 5.8 (0.2)
Other reserve (0.6) (0.8)
Retained earnings 114.1 108.4
150.8 138.2
Non-controlling interests 0.6 0.7
TOTAL EQUITY 151.4 138.9
The above condensed consolidated balance sheet should be read in conjunction
with the accompanying notes.
XP Power Limited
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2020
£ Millions
Attributable to equity holders of the Company
Note Share capital Share option reserve Treasury shares Merger reserve Hedging reserve Translation reserve Other reserve Retained earnings Total Non-controlling interests Total Equity
Balance at 1 January 2019 27.2 2.1 (1.0) 0.2 0.1 4.0 (0.8) 104.6 136.4 1.0 137.4
Sale of treasury shares - - 0.3 - - - - (0.1) 0.2 - 0.2
Employee share option plan expenses, net of tax - 0.7 - - - - - - 0.7 - 0.7
Dividends paid 7 - - - - - - - (10.0) (10.0) (0.2) (10.2)
Exchange difference arising from translation of financial statements of foreign operations - - - - - (0.2) - - (0.2) - (0.2)
Net change in cash flow hedges - - - - - - - - - - -
Profit for the year - - - - - - - 10.3 10.3 0.1 10.4
Total comprehensive income for the period - - - - - (0.2) - 10.3 10.1 0.1 10.2
Balance at 30 June 2019 (unaudited) 27.2 2.8 (0.7) 0.2 0.1 3.8 (0.8) 104.8 137.4 0.9 138.3
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
Sale of treasury shares - - 0.4 - - - - 1.4 1.8 - 1.8
Employee share option plan expenses, net of tax - 0.3 - - - - - - 0.3 - 0.3
Dividends paid 7 - - - - - - - (3.8) (3.8) * (3.8)
Further acquisition of non-controlling interest - - - - - - 0.2 - 0.2 (0.2) -
Exchange difference arising from translation of financial statements of foreign operations - * - - - 6.0 - * 6.0 - 6.0
Net change in cash flow hedges - - - - - - - - - - -
Profit for the year - - - - - - - 8.1 8.1 0.1 8.2
Total comprehensive income for the period - * - - - 6.0 - 8.1 14.1 0.1 14.2
Balance at 30 June 2020 (unaudited) 27.2 4.2 (0.1) 0.2 - 5.8 (0.6) 114.1 150.8 0.6 151.4
* Balance is less than £100,000.
The above condensed consolidated statement of changes in equity should be read
in conjunction with the accompanying notes.
XP Power Limited
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2020
£ Millions Six months ended 30 June 2020 (Unaudited) Six months ended 30 June 2019 (Unaudited)
Cash flows from operating activities
Profit after income tax 8.2 10.4
Adjustments for:
* Income tax expense 2.1 2.5
* Amortisation and depreciation 7.3 6.1
* Finance charge 1.0 1.6
* Equity award charges 0.6 0.5
* Fair value loss/(gain) on derivative financial instruments 0.9 (0.2)
* Loss/(gain) on disposal of property, plant and equipment * *
* Loss on disposal of intangible assets 1.2 -
* Unrealised currency translation gain (0.6) (0.3)
* Provision for doubtful receivables * *
Change in the working capital, net of effects from acquisitions:
* Inventories (8.2) 5.3
* Trade and other receivables 3.2 (0.6)
* Trade and other payables 5.8 0.4
* Provision for liabilities and other charges * (0.5)
Cash generated from operations 21.5 25.2
Income tax paid (0.6) (2.6)
Net cash provided by operating activities 20.9 22.6
Cash flows from investing activities
Purchases and construction of property, plant and equipment (1.8) (2.6)
Capitalisation of research and development expenditure (4.0) (4.4)
Capitalisation of intangible software and software under development (0.8) (1.9)
Proceeds from disposal of property, plant and equipment * 0.1
Repayment of ESOP loans * 0.1
Payment of accrued consideration (0.6) -
Net cash used in investing activities (7.2) (8.7)
Cash flows from financing activities
Repayment of borrowings (9.0) (2.4)
Principal payment of lease liabilities (0.8) (0.8)
Sale of treasury shares 1.8 0.3
Interest paid (0.8) (1.4)
Dividends paid to equity holders of the Company (3.8) (10.0)
Dividends paid to non-controlling interests * (0.2)
Net cash used in financing activities (12.6) (14.5)
Net increase(decrease) in cash and cash equivalents 1.1 (0.6)
Cash and cash equivalents at beginning of financial period 11.2 11.5
Effects of currency translation on cash and cash equivalents 0.7 (0.1)
Cash and cash equivalents at end of financial period 13.0 10.8
* Balance is less than £100,000.
The above condensed consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
XP Power Limited
Notes to the condensed consolidated financial statements
1.
General information
XP Power Limited (the “Company”) is listed on the London
Stock Exchange and incorporated and domiciled in Singapore. The address of
its registered office is 401 Commonwealth Drive, Lobby B #02-02, Haw Par
Technocentre, Singapore 149598.
The nature of the Group’s operations and its principal
activities is to provide power supply solutions to the electronics industry.
These condensed consolidated interim financial statements are
presented in Pounds Sterling (GBP).
1.
Basis of preparation
The condensed consolidated interim financial statements for the
period ended 30 June 2020 have been prepared in accordance with the Disclosure
and Transparency Rules of the United Kingdom’s Financial Conduct Authority
and with International Accounting Standards (“IAS”) 34 Interim Financial
Reporting as adopted by the European Union.
The condensed consolidated interim financial statements should be
read in conjunction with the annual financial statements for the year ended 31
December 2019 which have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the European Union.
1.
Going concern
The potential impact of COVID-19 on the Group has been considered in the
preparation of the interim financial statements. The Directors have reviewed
liquidity and covenant forecasts for the Group, which have been updated for
the impact of COVID-19 on trading. The Directors have also considered
sensitivities in respect of potential downside scenarios and the mitigating
actions available in concluding that the Group is able to continue in
operation for a period of at least twelve months from the date of approving
the interim financial statements.
In the downside scenarios, the Group continues to have liquidity headroom on
its debt facility throughout the period under assessment. The Directors are
satisfied that the Group has sufficient resources to continue in operation for
the foreseeable future, a period of not less than 12 months from the date of
this report. Accordingly, the consolidated financial information has been
prepared on a going concern basis.
1.
Accounting policies
The condensed consolidated interim financial statements have been
prepared under the historical cost convention except as disclosed in the
accounting policies within the Group financial statements for the year ended
31 December 2019.
The same accounting policies, presentation and methods of
computation are followed in these condensed consolidated interim financial
statements as were applied in the presentation of the Group’s financial
statements for the year ended 31 December 2019.
A number of new or amended standards became applicable for the
current reporting period. The adoption of these new or amended standards did
not result in substantial changes to the Group’s accounting policies and had
no material effect on the amounts reported for the current or prior financial
years.
5. Segmented and revenue information
The Board of Directors considers and manages the business on a
geographic basis. Management manages and monitors the business based on the
three primary geographical areas: North America, Europe and Asia. All
geographic locations market the same class of products to their respective
customer base.
Revenue
The Group derives revenue from the transfer of goods at a point
in time in the following major product lines and geographical regions.
Analysis by class of customer
The revenue by class of customer is as follows:
Six months ended 30 June 2020
£ Millions
Europe North America Asia Total
Primary geographical markets
Semiconductor Equipment Manufacturing 0.4 28.1 0.4 28.9
Technology 3.4 4.1 4.6 12.1
Industrial Electronics 17.3 14.9 3.7 35.9
Healthcare 8.8 16.8 2.6 28.2
29.9 63.9 11.3 105.1
Six months ended 30 June 2019
£ Millions
Europe North America Asia Total
Primary geographical markets
Semiconductor Equipment Manufacturing 0.2 17.1 0.2 17.5
Technology 3.0 7.3 0.5 10.8
Industrial Electronics 24.1 15.4 7.7 47.2
Healthcare 5.6 16.5 1.3 23.4
32.9 56.3 9.7 98.9
5. Segmented and revenue information (continued)
Reconciliation of segment results to profit after income tax:
£ Millions Six months ended 30 June 2020 (Unaudited) Six months ended 30 June 2019 (Unaudited)
Europe 8.2 8.8
North America 17.9 15.6
Asia 4.1 3.3
Segment results 30.2 27.7
Research and development (4.3) (4.5)
Manufacturing (2.5) (2.2)
Corporate cost from operating segment (5.4) (2.8)
Adjusted operating profit 18.0 18.2
Finance charge (1.0) (1.6)
Specific items (6.7) (3.7)
Profit before income tax 10.3 12.9
Income tax expense (2.1) (2.5)
Profit after income tax 8.2 10.4
£ Millions At 30 June 2020 (Unaudited) At 31 December 2019
Total assets
Europe 30.2 31.1
North America 132.5 123.7
Asia 84.0 74.8
Segment assets 246.7 229.6
Unallocated deferred and current income tax 3.4 3.8
Total assets 250.1 233.4
Reconciliation of 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, amortisation of intangible assets
arising from business combinations, reorganisation costs, and ERP
implementation costs.
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.
5. Segmented and revenue information (continued)
Reconciliation of adjusted measures (continued)
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 and a
reconciliation of profit before tax to adjusted profit before tax.
1.
Reconciliation of operating profit to adjusted operating profit:
£ Millions Six months ended 30 June 2020 (Unaudited) Six months ended 30 June 2019 (Unaudited)
Operating profit 11.3 14.5
Adjusted for:
Acquisition costs 0.3 0.4
Costs related to ERP implementation 1.5 0.5
Amortisation of intangible assets due to business combination 1.6 1.6
Legal costs (refer to note 10) 0.2 1.2
Restructuring costs 2.2 -
Fair value adjustments on currency hedge 0.9 -
6.7 3.7
Adjusted operating profit 18.0 18.2
Adjusted operating margin 17.1% 18.4%
1.
Reconciliation of profit before tax to adjusted profit before tax:
Profit before tax (“PBT”) 10.3 12.9
Adjusted for:
Acquisition costs 0.3 0.4
Costs related to ERP implementation 1.5 0.5
Amortisation of intangible assets due to business combination 1.6 1.6
Legal costs (refer to note 10) 0.2 1.2
Restructuring costs 2.2 -
Fair value adjustments on currency hedge 0.9 -
6.7 3.7
Adjusted PBT 17.0 16.6
6. 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
effective tax rate on profit before tax as at 30 June 2020 is 20.4% (2019:
19.4%).
7. Dividends
Amounts recognised as distributions to equity holders of the Company in the
period:
Six months ended 30 June 2020 (Unaudited) Six months ended 30 June 2019 (Unaudited)
Pence per share £ Millions Pence per share £ Millions
Prior year third quarter dividend paid 20.0 3.8 19.0 3.7
Prior year final dividend paid - - 33.0 6.3
Total 20.0 3.8 52.0 10.0
7. Dividends (continued)
The dividends paid recognised in the interim financial statements relate to
the third quarter dividend for 2019.
A second quarterly dividend of 18.0 pence per share (2019: 18.0 pence per
share) will be paid on 9 October 2020 to shareholders on the register at 11
September 2020.
8. 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 2020 (Unaudited) Six months ended 30 June 2019 (Unaudited)
Earnings
Earnings for the purposes of basic and diluted earnings per share (profit for the period attributable to equity holders of the company) 8.1 10.3
Amortisation of intangibles associated due to business combinations 1.6 1.6
Acquisition costs 0.3 0.4
Non-recurring tax benefits (1.0) (0.5)
Costs related to ERP implementation 1.5 0.5
Legal costs (refer to note 10) 0.2 1.2
Restructuring costs 2.2 -
Fair value adjustments on currency hedge 0.9 -
Earnings for adjusted earnings per share 13.8 13.5
Number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands) 19,293 19,145
Effect of potentially dilutive share options (thousands) 353 359
Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 19,646 19,504
Earnings per share from operations
Basic 42.0p 53.8p
Basic adjusted 71.5p 70.5p
Diluted 41.2p 52.8p
Diluted adjusted 70.2p 69.2p
9. Intangible assets
Development costs Brand Trademarks Technology Customer relationships Customer contracts Intangible software Intangible software under development Total
£ Millions
Cost
At 31 December 2019 43.2 1.0 1.0 4.9 17.8 0.6 7.4 - 75.9
Additions 4.0 - - - - - 0.2 0.6 4.8
Disposals (1.2) - - - - - - - (1.2)
Foreign currency translation 2.0 * 0.1 0.5 1.2 * 0.5 * 4.3
At 30 June 2020 48.0 1.0 1.1 5.4 19.0 0.6 8.1 0.6 83.8
Amortisation
At 31 December 2019 19.8 0.2 0.9 1.4 4.7 0.6 1.9 - 29.5
Charge for the year 2.2 * - 0.3 1.2 - 0.4 - 4.1
Foreign currency translation 0.6 0.1 0.1 0.1 0.4 * 0.1 - 1.4
At 30 June 2020 22.6 0.3 1.0 1.8 6.3 0.6 2.4 - 35.0
Carrying amount
At 30 June 2020 25.4 0.7 0.1 3.6 12.7 - 5.7 0.6 48.8
At 31 December 2019 23.4 0.8 0.1 3.5 13.1 - 5.5 - 46.4
* Balance is less than £100,000.
The amortisation period for development costs incurred on the Group’s
products varies between three and seven years according to the expected useful
life of the products being developed.
Amortisation commences when the product is ready and available for use.
The remaining amortisation period for customer relationships ranges from two
to eight years.
10. Contingent liabilities
The Group is involved in a non-customer related legal dispute in North
America, which is currently in mediation. No provision in relation to the
dispute has been recognised in these condensed interim financial statements as
it is not probable that an outflow of economic benefits will occur, and the
amount of outflow, if any, cannot be estimated reliably.
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 78% 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.
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 key customers
The Group is dependent on retaining its key customers. Should the Group lose
a number of its key customers, this could have a material impact on the
Group’s financial condition and results of operations. However, for the
six months ended 30 June 2020, no one customer accounted for more than 14% 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.
Risks and uncertainties (continued)
Strategic risk associated with valuing or integrating new acquisitions
The Group may elect from time to time to make 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
nearly 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.
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 with the
outbreak of the COVID-19 virus. 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.
Directors’ responsibility statement
The interim results were approved by the Board of Directors on 31 July 2020.
The Directors confirm 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 Officer
Gavin Griggs Chief Financial Officer
Andy Sng Executive Vice President, Asia
Terry Twigger Senior Non-Executive Director
Polly Williams Non-Executive Director
Pauline Lafferty Non-Executive Director
Signed on behalf of the Board by
James
Peters
Duncan Penny
Non-Executive
Chairman
Chief Executive Officer
31 July 2020
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