REG-XP Power Ltd: Interim Results
06/08/2024 07:15
6 August 2024
XP Power Limited
2024 Interim Results
Robust management action taken to address impact of market slowdown
Full year outlook unchanged and well-positioned for recovery
XP Power Limited (“XP Power” or “the Group”), one of the world's
leading developers and manufacturers of critical power control solutions for
the Semiconductor Manufacturing Equipment, Healthcare and Industrial
Technology sectors, today announces its interim results for the six months
ended 30 June 2024 (“H1 2024” or “the period”).
Six months ended 30 June (£m unless otherwise stated) 2024 2023 % change
At actual exchange rate In constant currency
Order intake 87.9 115.6 (24)% (22)%
Revenue 127.1 160.2 (21)% (18)%
Book-to-bill 0.69x 0.72x (0.03)x
Order book 149.5 250.0
Adjusted results 1 :
Operating profit 13.5 21.8 (38)% (36)%
Profit before tax 7.6 15.8 (52)% (50)%
Diluted earnings per share (pence) 24.4p 59.1p (59)%
Operating cash flow 34.9 30.0 16%
Statutory results:
Gross margin 40.6% 41.8% (120)bps (120)bps
Operating profit 9.1 17.3 (47)%
Profit before tax 3.2 10.9 (71)%
Diluted earnings per share (pence) 8.8p 38.7p (77)%
Net Debt 1 104.2 148.4 (30)%
Net Debt : Adjusted LTM EBITDA 1 2.2x 2.3x
1 Details of the adjustments made and reconciliations to the reported results
can be found in note 5 to the condensed consolidated financial statements.
Financial Highlights
* Order intake of £87.9m: * Semiconductor Manufacturing Equipment orders
higher than the market trough in H1 2023, but awaiting a sustained recovery
* Channel destocking progressing but taking longer than expected, particularly
within the Industrial Technology sector
* Revenue of £127.1m: * First half revenue in line with the Board’s
expectations
* Year-on-year reduction reflects channel destocking and a market-wide
downcycle impacting demand for Semiconductor Manufacturing Equipment
* Monthly revenue steady throughout the period
* Adjusted Operating Profit of £13.5m: * Ahead of the Board’s expectations
set in March due to the proactive actions taken to manage costs
* Adjusted Operating Expenses 16% lower than the comparative period, with
sources of long-term competitive advantage preserved
* Gross Margin of 40.6% similar to the second half of 2023 (41.2%)
* Adjusted Operating Cash Flow of £34.9m: * Actions to improve balance sheet
resilience are delivering ahead of expectations
* Record operating cash conversion of 259% (H1 2023: 138%) from working
capital reduction
* Net Debt reduced by £8.5m in the period to £104.2m, equal to 2.2x Adjusted
LTM EBITDA
* Borrowing facilities proactively extended to December 2026 and covenant
headroom prudently increased to maximise balance sheet resilience and
accommodate any unexpected market developments
Operational Highlights
* Robust management action taken to address impact of market slowdown: * Cost
base rapidly right-sized to market conditions - with further action taken in
the period, building on initial measures commenced in late 2023
* Long-term competitiveness maintained
* Inventory management significantly improved, with inventory reduced by
£9.9m in the period
* Group has remained profitable and highly cash generative in challenging
“trough” conditions, highlighting underlying resilience and latent margin
potential when volumes recover
* Provides a solid base for future growth
* Well-positioned for recovery: * Confident that end markets will resume
trajectory of GDP++ long-term growth
* Established customer relationships provide clear growth opportunities
* Healthy pipeline of new business wins and new products
* Well invested infrastructure with scalable capacity
* Strong market position with clear differentiators
Outlook
* Confident that our financial performance will improve and reflect underlying
operational improvements once channel stock levels reach equilibrium and as
demand recovers within the Semiconductor Manufacturing Equipment market
* It remains difficult to be precise about the timing of the recovery with
channel destocking now expected to continue until the end of the third
quarter, longer than previously expected. The profit impact of this is offset
by decisive cost actions already taken
* Adjusted Operating Profit expectations for 2024 are unchanged, more evenly
weighted between each half and generally less sensitive to demand conditions
in the second half
Gavin Griggs, Chief Executive Officer, commented:
“The proactive actions we have taken to reduce cost and working capital have
created a solid platform from which to trade profitably and cash generatively
whilst we wait for market conditions to recover. The relative consistency we
have seen in trading month-to-month during the first half suggests that market
conditions are in the process of stabilising, although it remains difficult to
be precise about the timing of the recovery and the duration of channel
destocking in particular.
Momentum has continued into the start of the second half of the year and the
Board’s profit expectations for 2024 remain unchanged. Cost actions have
made our profit more evenly weighted between each half and generally less
sensitive to second half demand conditions.
Whilst our focus has been on closely managing short-term performance, we have
continued to execute our strategy and have used a period of slower activity
levels to make sure we have the foundations necessary to maximise our
long-term potential. The fundamentals underpinning demand in our sectors
remain firmly in place and we are well-positioned to benefit as an independent
business as our markets return to structural long-term growth.”
Enquiries:
XP Power
Gavin Griggs, Chief Executive Officer +44 (0)118 976 5155
Matt Webb, Chief Financial Officer +44 (0)118 976 5155
Citigate Dewe Rogerson
Kevin Smith/ Lucy Gibbs +44 (0)20 7638 9571
A meeting for analysts will be held at 10:30am BST today, 6 August 2024 at the
offices of Investec, 30 Gresham Street, London EC2V 7QN. To register to attend
please email xppower@citigatedewerogerson.com. A live audio stream of the
meeting can be accessed via https://brrmedia.news/XPP_HY24.
XP Power designs and manufactures power controllers, the essential hardware
component in every piece of electrical equipment that converts power from the
electricity grid into the right form for equipment to function. Power
controllers are critical for optimal delivery in challenging environments but
are a small part of the overall customer product cost.
XP Power typically designs power control solutions into the end products of
major blue-chip OEMs, with a focus on Semiconductor Manufacturing Equipment
(circa 36% of sales in H1 2024), Healthcare (circa 24% sales in H1 2024) and
Industrial Technology (circa 40% of sales in H1 2024) sectors. Once designed
into a programme, XP Power has a revenue annuity over the life cycle of the
customer’s product which is typically five to seven years depending on the
industry sector. XP Power has invested in research and development and its own
manufacturing facilities in China, North America, and Vietnam, to develop a
range of tailored products based on its own intellectual property that provide
its customers with significantly improved functionality and efficiency.
Headquartered in Singapore and listed on the Main Market of the London Stock
Exchange since 2000, XP Power is a constituent of the FTSE All Share Index. XP
Power serves a global blue-chip customer base from over 30 locations in
Europe, North America, and Asia.
For further information, please visit www.xppowerplc.com
Forward-looking statements
This announcement contains forward-looking statements that are subject to risk
factors associated with, among other things, the economic and business
circumstances occurring from time to time in the countries, sectors and
markets in which the Group operates. It is believed that the expectations
reflected in these statements are reasonable, but they may be affected by a
wide range of variables which could cause actual results to differ materially
from those currently anticipated. No assurances can be given that the
forward-looking statements in this announcement will be realised.
The forward-looking statements reflect the knowledge and information available
to management at the date of preparation of this announcement. XP Power and
its Directors accept no responsibility to third parties and undertake no
obligation to update these forward-looking statements. Nothing in this
announcement should be construed as a profit forecast.
Chief Executive Officer’s Review
H1 Overview
As expected, the Group faced unusually challenging market conditions in the
first half of 2024 but responded to them robustly.
One of the Group’s main strengths is its attractive positions in three
distinct market sectors, namely Semiconductor Manufacturing Equipment,
Healthcare and Industrial Technology, which all have clear, distinguishable
long-term growth drivers. We have long-standing customer relationships in
these sectors and participate in long-term projects with a high proportion of
annuity revenue. This makes the simultaneous slowdown in all three sectors in
2024 very unusual. I am proud of the way in which we responded to these
developments by diligently executing a plan of action to protect our
performance whilst ensuring that we remain well positioned to benefit as our
markets return to growth.
Revenue was £127.1m (H1 2023: £160.2m), 20.7% lower than a strong
comparative period that benefited from backlog clearance. Revenue declined in
all three market sectors. The slowdown within the Semiconductor Manufacturing
Equipment sector was due to an industry-wide downcycle. The slowdown in the
Healthcare and Industrial Technology sectors was driven by channel destocking,
with end market demand remaining more resilient. Monthly revenue was stable
throughout the period and in line with our expectations. Recent ordering
patterns suggest channel destocking will continue until the end of Q3 2024,
slightly longer than we had previously expected.
Gross Margin of 40.6% (H1 2023: 41.8%) was similar to our performance in H2
2023. Lower manufacturing output inevitably brought less efficient utilisation
of factory overheads, but this was successfully offset by input cost savings
and better manufacturing process efficiency, as we had planned.
In response to the market downturn, the Group implemented a programme of cost
reduction measures. Adjusted Operating Expenses were reduced by 16% to £38.1m
(H1 2023: £45.2m) through various actions taken in late 2023 and throughout
the first half of 2024. Our approach to cost reduction has been broad,
disciplined and continuous, whilst preserving key sources of long-term
competitive advantage.
Adjusted Operating Profit of £13.5m (H1 2023: £21.8m) was £8.3m lower than
a buoyant H1 2023 and benefited significantly from cost reduction initiatives,
as a result of which first half profits were slightly ahead of the Board’s
expectation.
Self-help actions also underpinned continued strong cash generation. We
delivered record Adjusted Operating Cash Conversion, primarily through
inventory reduction, which lowered our borrowings and improved our balance
sheet. Tight control of cost, working capital and operational execution has
allowed the business to generate healthy profits and cash during an
unprecedented demand trough. We are confident that continued discipline in
this area, combined with ongoing balance sheet deleveraging, will ensure that
we emerge from this period with renewed resilience.
Revenue by market
Revenue declined by 20.7% to £127.1m (H1 2023: £160.2m), including a
constant currency decline of (18.3)% and an adverse currency movement of 2.4%.
The breakdown of the revenue movement by sector was as follows:
% of Group revenue Revenue growth / (decline) %
Semiconductor Manufacturing Equipment 36% (14)%
Industrial Technology 40% (23)%
Healthcare 24% (16)%
Total – In constant currency 100% (18)%
Currency movement (3)%
Total (21)%
Semiconductor Manufacturing Equipment
Sales to the Semiconductor Manufacturing Equipment sector reduced by 14% in
constant currency, outperforming the wider Group due to strong sales of high
voltage, high power (“HVHP”) products, which have proved more resilient
and are used at key stages in the wafer fabrication process. Investment in
people and processes over recent years allowed us to scale up manufacturing
output of these products to meet demand, reducing backlog and growing sales by
more than 70% year-on-year. We are targeting further growth by adding low-cost
HVHP manufacturing capacity to our existing facilities in Asia to complement
our existing operations in the USA.
Order intake of £36.1m (H1 2023: £28.1m) was 29% higher than the comparative
period and 17% higher sequentially, indicating that the sector is likely past
the market trough, albeit this has yet to convert into a sustained recovery.
The book-to-bill ratio was 0.79x.
Global sales of semiconductor devices returned to growth in late 2023, with
double digit growth expected for 2024 as a whole. Wafer fabrication capacity
utilisation rates are increasing and we are confident that this will lead to
increased sales of Semiconductor Manufacturing Equipment in due course.
The prospects for this sector are very attractive and we continue to expect
long-term market growth averaging 10% per annum, underpinned by the wafer
fabrication capacity expansion planned in an increasing number of countries to
keep pace with future demand for technologies such as AI, IoT and electrified
transportation. Given our customer exposure, we expect to grow ahead of the
market.
Industrial Technology
Industrial Technology is a large, diverse and growing market. Our business is
largely focused on meeting the power needs of customers in the analytical
instrumentation, test & measurement and process control & automation
sub-sectors. We also have opportunities to increase our presence in attractive
areas requiring high power and/or high voltage solutions, such as mass
spectrometry, scanning electron microscopy, CT-based security scanners and
renewable electricity applications.
Sales to the Industrial Technology sector declined by 23% in constant
currency, as expected, due to a combination of backlog clearance in the
comparative period and channel destocking in the current period. With delivery
lead times now largely normalised, customers continue to wind down their
buffer inventory before placing new orders. This is particularly evident
within the High Service Level Distribution (“HSLD”) channel, consisting of
specialist distributors of electronic components, which account for
approximately one quarter of sector revenue. HSLD channel inventory levels
have reduced but remain elevated relative to network revenue, meaning we
expect destocking to continue until the end of the third quarter.
Order intake totalled £34.7m (H1 2023: £51.2m), representing a book-to-bill
ratio of 0.68x.
In 2023, we entered into a sales agreement with a leading, pan-European
“design in” distributor to increase our sales reach in the Region. The new
sales approach is delivering as planned, with our new distribution partner
identifying a significant number of small to medium-sized customer projects in
the period, freeing-up our in-house sales team to focus on larger accounts.
Healthcare
Long-term growth in this sector is supported by an ageing population and the
incorporation of new technologies into medical devices to improve treatment
outcomes, drive efficiency or reduce procedural invasiveness. As an
illustration, we recently won a significant new project to provide a power
solution for an innovative device that uses high voltage electrical fields to
treat cardiac arrhythmia without the need for major surgery.
Sales to the Healthcare sector reduced by 16% in constant currency, as
expected. Healthcare was our fastest growing sector in 2023, in part supported
by backlog clearance leading to the restocking of the sales channel.
Restocking in 2023 has switched to destocking in 2024 as normalised global
supply chain conditions post-pandemic have allowed customers to lower their
inventory cover. End market demand has remained healthy throughout, with many
of our major customers reporting sales growth in 2024.
Order intake was £17.1m and the book-to-bill was 0.56x. Monthly intake was
relatively stable throughout the period.
Regional Performance
Sales to North America reduced by 19% in constant currency to £69.7m (H1
2023: £88.8m). Sales to Semiconductor Manufacturing Equipment customers
declined by less than the Regional average, aided by capacity expansion within
the HVHP category as referenced above. Order intake from these customers
improved sequentially and year-on-year. Sales to customers in the Healthcare
and Industrial Technology sectors slowed by more than the Regional average due
to destocking.
Sales to Europe totalled £43.3m (H1 2023: £52.2m), down 15% in constant
currency. The decline was driven by customer destocking particularly within
the HSLD channel which is particularly significant to this Region. Regional
performance included further sales growth from FuG, a business acquired by the
Group in 2022. As highlighted at the time of acquisition, we are supporting
the future progress of this business by using our sales team to increase its
global reach.
Sales to Asia totalled £14.1m (H1 2023: £19.2m), down 25% in constant
currency. Order intake from customers in China reduced materially as the
domestic semiconductor industry adapted to new rules introduced by both the US
and Chinese governments controlling the export of wafer fabrication equipment.
Whilst most of our products are not directly impacted by the new rules, their
introduction is disrupting purchasing patterns across the industry.
Robust management action taken to address impact of market slowdown
At the end of 2023, it became clear that we would need to adapt to slower than
expected demand by lowering our costs and maximising our cash generation in a
targeted way. Our response since then has been diligent, proportionate and
proactive. Throughout the process, we have been careful to strike the right
balance between protecting our short-term performance and preserving our
long-term potential.
The initial round of cost reduction actions announced in October 2023, from
which £8-10m of annualised benefit was expected, have been delivered in full.
A second round of headcount reduction actions was taken toward the end of the
first quarter, supplemented by natural headcount attrition and continuous,
tight control over discretionary expenditure throughout the period. Further
details can be found in the Chief Financial Officer’s Review.
The cumulative effect was a 16% year-on-year reduction in first half overheads
(Adjusted Operating Expenses), which we expect to be repeated for the full
year. We believe the current cost base is appropriate for the demand we
expect, but we remain vigilant. I would like to thank the entire XP team for
their diligence and forbearance during this difficult period, from which I
believe we will emerge stronger.
We also made good progress with working capital reduction, particularly
inventory, leading to record Adjusted Operating Cash Conversion of 259% (H1
2023: 138%). Capex (excluding product development) was limited to maintenance
levels save for residual amounts paid as planned in respect of major projects
in 2023.
Through continuous and diligent action, we have supported our profits and
balance sheet position through an unprecedented trough in demand, whilst
creating a leaner and more efficient business that will deliver an enduring
benefit as our markets recover.
Well-positioned for recovery
Whilst managing the market slowdown has been a key priority, we have also used
this period of slower trading to ensure we are well positioned as conditions
improve. Our vision, culture and strategy are clear and unchanged. We have
improved our readiness by accelerating the delivery of our strategy whilst we
wait for market conditions to turn.
Our vision is to be the first-choice power solutions provider and deliver the
ultimate experience for our customers and our people. It is helpful to put
this vision into the context of the Group’s recent history.
Our business originated as a distributor of low voltage power supplies. Over
time, we developed strategically to become vertically integrated, with
in-house design and manufacturing capability. We have invested proactively in
the systems and production capabilities necessary to operate a global,
flexible, high quality, low-cost supply chain.
Through both organic product development and M&A, we have expanded into more
complex categories, adding HVHP and radio frequency (“RF”) products to our
portfolio. We are now one of only a few providers who can offer a complete
spectrum of power and voltage capabilities and package several power
converters into an overall solution customised to the customer’s specific
application. This makes us an attractive partner to our key customers and is a
key driver of our market share gains.
Whilst our origins are in powering our customers’ products, we are
increasingly involved in enabling our customers’ power-driven processes.
Examples include our high voltage devices that allow semiconductor wafers to
be clamped electrostatically during wafer fabrication, or our RF products that
precisely energise gas plasmas used to etch chip architectures. Products that
support power-driven processes are often essential to the functionality of our
customers’ own equipment and as such are typically high margin and
defensible. Serving this market plays to our strengths of close customer
support, world class technical knowledge, rapid product development, high
quality standards and a closely integrated supply chain.
Our strategy is as follows:
· Product development: Continually develop our market
leading range of competitive products, both organically and through selective
acquisition;
· Customer development: Target customer accounts where we
can add value and increase our penetration of those target customers;
· Supply chain development: Continually improve our global,
end-to-end, supply chain, balancing high efficiency with market leading
customer responsiveness; and
· Environmental leadership: Lead our industry on
environmental responsibility
We have continued to make progress with our strategic priorities during the
period, as summarised below.
Product development
Our product development activities divide into two broad areas:
· Traditional development of base power supplies for
general market launch, and
· Development of customised solutions for specific
customers that are often derived from the base power supply (which we call
Engineering Services).
Our traditional development activities this year are focused on:
· Rapid enhancement of our low voltage range, with support
of third-party design and manufacturing partners, to infill gaps in the power
spectrum, reduce the product form factor and add connectivity
· Completing the development of a new digitally
configurable low voltage, high power product family
· Extending our HVHP range to grow our share of ion
implantation, mass spectroscopy and scanning electron microscopy end markets.
Collectively, our pipeline of new product development activities is the
strongest it has been for several years.
We continued to launch our pipeline of new Engineering Services products. Our
long-term ambitions for this part of our business were underlined by the
opening of our new Innovation Centre in San Jose, USA which showcases our
product design, test, customisation and fulfilment capabilities in the heart
of Silicon Valley.
Customer development
We work with leading OEMs in each of the three market sectors we serve. These
relationships are deep and enduring and our customers recognise us for our
superior quality, reliability, responsiveness and flexibility.
To illustrate the progress we are making in this area, we grew the value of
new projects sampled and new projects won year-on-year despite the slowdown in
demand conditions. The size of our sales funnel also grew, indicating that the
value of new business won exceeded the value of projects reaching the end of
their life cycle.
Both outcomes support the conclusion that our competitive advantages remain
strong and we are well positioned to continue to outperform the market
long-term.
Supply chain development
Normalised global supply chain conditions have allowed us to continue to
improve our service levels. Average delivery lead times reduced and continue
to do so. Delivery of backlog allowed the order book to reduce by £42m in the
period to £150m.
Manufacturing capacity was flexed appropriately to meet demand. Within HVHP,
capacity was added to our facility in the US to meet demand through investment
in both people and equipment to improve production efficiency. In other
product categories, manufacturing capacity was scaled back proactively and
efficiently in response to lower demand. We have ample structural capacity
within our existing manufacturing sites in China and Vietnam and have
therefore deferred the recommencement of construction of our new facility in
Malaysia until 2025. We have clear plans in place to rapidly scale up
manufacturing output as demand improves.
Slower demand conditions allowed us to take steps to improve the efficiency
and resilience of our supply chain arrangements. Input costs are being
progressively lowered through the negotiation of better pricing and tighter
sourcing processes. Resilience is being enhanced through the negotiation of
flexible purchasing arrangements, the resetting of safety stock levels and via
improvements to our production planning systems.
Another key area of focus has been on ensuring we leverage fully the cost and
capacity advantages of our Asian supply chain across our product portfolio.
These efforts have focused on HVHP and RF products that are largely made in
the US today. I am confident that the efforts being put into this area in 2024
will have a material beneficial impact on 2025 and beyond.
Sustainability
The Group is committed to significant reductions in Greenhouse Gas emissions
by 2030 via the Science-Based Targets Initiative (“SBTi”). We achieved
reductions in Scope 1, 2 and 3 emissions in 2023, greater than the run rate
required to achieve our SBTi goals and expect to do so again in 2024.
We already submit the Carbon Disclosure Project’s Climate Change
questionnaire annually, receiving an upgraded B rating in 2023, and plan to
add the Water Security questionnaire for the first time this year.
Outlook
The proactive actions we have taken to reduce cost and working capital have
created a solid platform from which to trade profitably and cash generatively
whilst we wait for market conditions to recover. The relative consistency we
have seen in trading month-to-month during the first half suggests that market
conditions are in the process of stabilising, although it remains difficult to
be precise about the timing of the recovery and the duration of channel
destocking in particular.
Momentum has continued into the start of the second half of the year and the
Board’s profit expectations for 2024 remain unchanged. Cost actions have
made our profit more evenly weighted between each half and generally less
sensitive to second half demand conditions.
Whilst our focus has been on closely managing short-term performance, we have
continued to execute our strategy and have used a period of slower activity
levels to make sure we have the foundations necessary to maximise our
long-term potential. The fundamentals underpinning demand in our sectors
remain firmly in place and we are well-positioned to benefit as an independent
business as our markets return to structural long-term growth.
Gavin Griggs
Chief Executive Officer
Chief Financial Officer’s Review
Statutory Results
The statutory operating profit of £9.1m was £8.2m lower than the comparative
period due to the impact of lower revenue net of cost reductions.
Net finance expense was £5.9m (H1 2023: £6.4m), resulting in profit before
tax of £3.2m (H1 2023: £10.9m). The reduction in net finance costs reflects
lower average borrowing levels. The tax charge was £1.0m (H1 2023: £3.1m).
The basic earnings per share was 8.9p (H1 2023: 38.9p).
Adjusted Results
As in prior years, Adjusted and other alternative performance measures are
used in this announcement to describe the Group’s results. These are not
recognised under International Financial Reporting Standards (IFRS) or other
generally accepted accounting principles (GAAP).
Adjustments are items included within our statutory results that are deemed by
the Board to be unusual by virtue of their size or incidence. Our Adjusted
measures are calculated by removing such Adjustments from our statutory
results. The Board believes Adjusted measures help the reader to understand XP
Power’s underlying results and are used by the Board and management team to
interpret Group performance. Note 5 to the condensed consolidated financial
statements includes reconciliations of statutory metrics to their Adjusted
equivalent and provides a breakdown of the Adjustments made.
Order Intake
In the six months to 30 June 2024, our order intake of £87.9m was 24.0% lower
than the same period in the comparative period. The reduction in order intake
reflects both a natural slowdown after the particularly strong years of 2021
and 2022 and the current market dynamics. The Semiconductor Manufacturing
Equipment sector continues to be impacted by an industry-wide downcycle,
although it is performing better than the trough experienced in the
comparative period. The Healthcare and Industrial Technology sectors also saw
lower order intake, primarily due to ongoing customer destocking.
Additionally, shorter delivery lead times have temporarily reduced order
intake, as customers have had the flexibility to place orders later than in
recent financial years.
Revenue
Revenue for the period of £127.1m remained in line with expectations and was
relatively stable from month-to-month. However, revenue for the period was
20.7% lower than the elevated comparative period, which benefited from
significant amounts of backlog clearance. At constant currency the decrease
was 18%, with a 2.4% impact from currency movements.
The Group’s revenue by region and by sector for the first half of 2024 is
set out in the table below:
Six months to 30 June 2024 £m % change in constant currency
North America
Semiconductor Manufacturing Equipment 37.4 (11.8%)
Industrial Technology 16.1 (34.0%)
Healthcare 16.2 (16.5%)
Total 69.7 (19.2%)
Europe
Semiconductor Manufacturing Equipment 1.9 (16.7%)
Industrial Technology 29.6 (14.2%)
Healthcare 11.8 (14.9%)
Total 43.3 (14.5%)
Asia
Semiconductor Manufacturing Equipment 6.4 (21.8%)
Industrial Technology 5.2 (29.5%)
Healthcare 2.5 (22.5%)
Total 14.1 (25.0%)
Revenue from Semiconductor Manufacturing Equipment declined by 16%, reflecting
the ongoing downcycle. However, increased manufacturing output has driven
significant market share gain within our HVHP business, resulting in a 71%
increase in revenue for this product line, compared to the comparative period.
This aligns with our long-term strategy of gaining share in categories that
require greater power delivery and technical complexity.
The revenue generated from Industrial Technology experienced a 26% decline,
primarily driven by destocking activities, particularly by our Distribution
customers who account for a significant proportion of this sector.
In Healthcare, revenue decreased by 18% driven by continued channel
destocking. End market demand absent channel stock movements remained
stronger, with our major medical customers reporting continued revenue growth.
The year-on-year decline in Healthcare and Industrial Technology sectors was
generally impacted by customers switching from restocking in the first half of
2023 to destocking in the first half of 2024 as supply chains began to
normalise.
Turning to regional revenue performance (in constant currency) North America
saw a 19% decline, with the impact of underlying market dynamics somewhat
mitigated by strong shipments of HVHP products. This was achieved against the
backdrop of a successful transition to our new facility in Silicon Valley. In
Europe, revenue declined by 15%, driven by destocking within the Industrial
Technology and Healthcare sectors, which represent the majority of our sales
in the region. However, we saw healthy growth from the FuG business (HVHP
products) acquired in 2022 and feel optimistic about the significant
opportunities for further cross-selling of FuG products by our global sales
teams. Our recent partnership with a major, pan-European “design in”
distributor will also enhance our market reach moving forward. In Asia,
revenue decreased by 25%. Demand from Semiconductor Manufacturing Equipment
customers in China was disrupted by the global market downcycle and
market-wide disruption from recent changes to export controls.
Order Book
Our order book reduced by c. £42m during the period, bringing it to £150m as
at 30 June 2024. As expected, the backlog of overdue orders is now largely
cleared. We anticipate that delivery lead times will continue to shorten as we
continue to improve our fulfilment performance, which is likely to result in a
further natural reduction in the order book size in the second half.
Consequently, we expect the book-to-bill ratio to remain below 1.0x until
delivery lead times have reached optimised levels, which is expected to occur
in the second half of 2024.
Our order book suggests revenue in Q3 2024 will be similar to Q2 2024.
Gross Margin
Our gross margin for the period was 40.6%, slightly lower than the comparative
period, but similar to that achieved in the second half of 2023 (41.2%). We
have seen a positive impact from our cost-saving actions, benefited from input
cost reductions and held our selling prices at 2023 levels, all of which
helped offset the impact of lower factory utilisation due to the slower demand
conditions explained above.
Cost-saving actions include a reduction in logistics costs from reduced use of
expensive air freight and contract negotiation. Events in the Red Sea have not
had a material impact on either logistics costs or product availability.
Our underlying manufacturing process efficiency also improved, particularly in
our two facilities on the US East Coast, which produce HVHP and RF products.
We have also rationalised our production overhead across all manufacturing
locations, whilst still leaving the business well positioned to scale up as
demand recovers.
We expect gross margins to benefit in the future from ongoing efforts to
transfer specific product lines from the US to Asia to take advantage of lower
costs of production. The transfer will also provide additional manufacturing
capacity needed to support future growth as our key sectors recover.
Our production facility in Malaysia remains part of our long-term
manufacturing plan, but slower demand conditions have allowed us to defer its
completion. We do not expect to recommence construction during 2024.
Operating Expenses
Statutory operating expenses reduced by £7.2m to £42.5m.
Adjusted Operating Expenses in the period are 16% lower than the comparative
period. This reduction reflects the impact of cost actions taken in late 2023
and throughout the first half of 2024 in response to the market slowdown
preserving our profitability and protecting our balance sheet position. The
reduction achieved is net of additional costs from relocating to improved
facilities in Silicon Valley.
Our focus on managing costs has been broad, disciplined and continuous, whilst
being careful to preserve our sources of competitive advantage. The actions
set in the original funding plan disclosed in our annual report for the year
ended 31 December 2023 have all been delivered in full. In the first half of
2024 we have removed a further 60 support and administrative roles from the
business, restricted annual salary increases to lower paid workers only and
have progressively reset all discretionary spending to appropriate levels.
We believe our cost base is now appropriate for expected activity levels. We
will retain the current rigour in cost control and therefore expect to see
strong operating leverage from growth as our markets recover. For the
full-year 2024 we expect to be able to report a 17% overhead reduction
compared to 2023.
Operating Profit
Statutory operating profit of £9.1m was £8.2m lower than the comparative
period.
Our Adjusted Operating Profit for the period of £13.5m was £8.3m lower than
the comparative period. This performance reflects our extensive efforts to
protect profitability through cost reduction in softer demand conditions. Our
proactive cost management allowed us to enter the second half with first half
profit slightly ahead of the Board’s expectations.
Adjusted Net Finance Expense
Adjusted Net Finance Expense of £5.9m reflects a £1.2m increase in IFRS16
lease interest costs from our new Silicon Valley facility, offset by an
equivalent reduction in bank interest. The much-reduced average level of
borrowings has led to a lower bank interest charge despite an increase in base
rates.
Tax and earnings per share
The effective tax rate applicable to Adjusted Profit Before Tax was 22.4%.
Our effective tax rate applicable to Adjusted Profit Before Tax for 2023 was
elevated at 36.8% due to difficulties in obtaining full benefit from available
tax losses and credits in our US business. These difficulties are gradually
being overcome, as the lower tax rate for H1 2024 reflects.
Adjusted Basic and Adjusted Diluted Earnings Per Share decreased by 59% to
24.5 pence and 24.4 pence respectively.
Adjustments
The Group incurred costs of £4.4m (H1 2023: costs of £4.9m) which we
consider to be Adjustments (as explained in Note 5 to the condensed
consolidated financial statements) and have therefore excluded them when
calculating Adjusted Profit Before Tax. These are summarised below:
Income / (cost) impact by Income Statement line Six months ended 30 June £m 2024 2023
Operating profit Net finance expense Profit before tax Operating profit Net finance expense Profit before tax
Restructuring costs (1.1) - (1.1) (1.5) - (1.5)
Site double running costs - - - - (1.0) (1.0)
Supply chain transformation (0.9) - (0.9) - - -
Comet legal case (0.6) - (0.6) (1.4) - (1.4)
Amortisation of acquired intangibles (1.6) - (1.6) (1.6) - (1.6)
ERP implementation - - - (0.2) - (0.2)
Bid defence costs (0.2) - (0.2) - - -
Other - - - 0.2 0.6 0.8
Total (4.4) - (4.4) (4.5) (0.4) (4.9)
Severance paid in respect of headcount reduction in the period resulted in
restructuring costs of £1.1m.
£0.2m was spent on bid defence activities following a recent unsolicited and
unsuccessful takeover approach for the Group.
In respect of the Comet legal case, we continue to await the original trial
judge’s ruling in respect of plaintiff’s claim for associated legal fees
and interest. Once this ruling is received, our Appeal will be heard against
the original damages award. We believe our Appeal is well-founded.
Cash Flow and Financial Position
During the period the Group generated Adjusted Operating Cash Flow of £34.9m,
representing a record Adjusted Operating Cash Conversion of 259%.
This was achieved through self-help actions to reduce inventory and tightly
control cash collection. We delivered an inventory reduction of £9.9m despite
relatively slow demand conditions, through proactive management of forward
purchasing and production output, and the removal of surplus inventory buffer
as supply chain conditions normalised. A full review of safety stock was
conducted during the period to ensure the business is well positioned to
respond as demand improves.
Six months ended 30 June Adjusted £m 2024 2023
Operating profit 13.5 21.8
Depreciation and amortisation 7.8 6.9
EBITDA 21.3 28.7
Change in working capital 14.1 1.1
Other items (0.5) 0.2
Operating cash flow 34.9 30.0
Net capital expenditure – Product development costs (5.5) (4.6)
Net capital expenditure – Other assets (7.8) (9.2)
Net interest paid (6.0) (6.8)
Tax paid (3.1) (1.3)
Other items (0.7) (0.3)
Free cash flow 11.8 7.8
Our capital expenditure for the period was £13.3m, including £5.5m invested
in product development, £6.0m on major projects and £1.8m on maintaining our
existing assets. Major projects comprised the relocation of our facilities on
the US West Coast and construction of the Malaysia facility, prior to pausing
this project whilst capacity remains ample. The facility moves in the US went
smoothly with no disruption, and our new Silicon Valley facility is a
world-class full-service site, demonstrating the breadth of our offering in
the heart of the US semiconductor industry. The final payment of £3m for the
construction of this facility is due early in the second half of 2024.
We successfully reduced our Net Debt by £8.5m to £104.2m, which has resulted
in a better-than-expected funding position. At 30 June 2024, leverage stood at
2.2x Adjusted LTM EBITDA compared to a covenant limit of 3.5x and Interest
Cover at 4.2x compared to a covenant floor of 3.0x. We expect Interest Cover
to reduce modestly in H2 as our finance expense reflects the full annualised
cost of IFRS 16 lease interest costs associated with the new Silicon Valley
facility. We remain confident in our previous guidance that Net Debt will be
at or below 2.5x Adjusted LTM EBITDA by the end of 2024 and that the Group
will remain in full compliance with all banking covenants.
Dividends continue to be an important part of the Group’s long-term capital
allocation strategy, but our focus must remain on debt reduction. No dividends
are declared in respect of the period (H1 2023: 18.0p).
Notwithstanding our expectations of continued covenant compliance, the
Directors believe it is in the interests of shareholders that all available
proactive steps are taken to ensure the Group’s balance sheet is fully
resilient to all possible future market developments, whether expected or not.
In particular, the Directors have sought to ensure the Group can comfortably
accommodate an unexpectedly large amount of channel destocking, recognising
that customers’ stocking decisions are beyond its control and could impact
short-term performance. It has therefore implemented the following package of
prudent changes to its funding arrangements at relatively modest cost and with
the full support of its lenders:
* A temporary reduction in the Interest Cover covenant for quarterly tests
until Q1 2026, as set out in note 2 to the Condensed Consolidated Financial
Statements. No changes have been made or are deemed necessary to leverage
covenant levels.
* An extension of the maturity of its main RCF facility to December 2026
As part of these changes we have reduced the total borrowing facility size
from $255m to $210m. . Had this reduction been made at 30 June 2024, headroom
in committed banking facilities would have been $59m. This level of headroom
is sufficient to meet the Group’s future borrowing needs, is consistent with
our aim of reducing leverage to 0-1x Adjusted LTM EBITDA and allows the Group
to reduce the cost of unutilised borrowing capacity.
The Directors are confident that the Group will remain in full compliance with
its banking covenants for the foreseeable future, in both its base case and
severe but plausible downside case scenarios, as required by mandatory going
concern testing, with clear covenant headroom.
Matt Webb
Chief Financial Officer
6 August 2024
XP Power Limited
Condensed Consolidated Income Statement
For the six months ended 30 June 2024
£m Note Adjusted Adjustments (see Note 5) Six months ended 30 June 2024 Adjusted Adjustments (see Note 5) Six months ended 30 June 2023
Revenue 4 127.1 - 127.1 160.2 - 160.2
Cost of sales (75.5) - (75.5) (93.2) - (93.2)
Gross profit 51.6 - 51.6 67.0 - 67.0
Operating Expenses
Distribution and marketing (26.4) (2.9) (29.3) (31.7) (1.9) (33.6)
Administrative (2.1) (1.5) (3.6) (2.1) (2.6) (4.7)
Research and development (9.6) - (9.6) (11.4) - (11.4)
Operating profit 13.5 (4.4) 9.1 21.8 (4.5) 17.3
Net finance expense (5.9) - (5.9) (6.0) (0.4) (6.4)
Profit before tax 7.6 (4.4) 3.2 15.8 (4.9) 10.9
Taxation 6 (1.7) 0.7 (1.0) (4.0) 0.9 (3.1)
Profit for the period 5.9 (3.7) 2.2 11.8 (4.0) 7.8
Attributable to:
Equity shareholders 2.1 7.6
Non-controlling interests 0.1 0.2
Profit for the period 2.2 7.8
Earnings per share (pence)
Basic 8 24.5 (15.6) 8.9 59.3 (20.4) 38.9
Diluted 8 24.4 (15.6) 8.8 59.1 (20.4) 38.7
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2024
£m Six months ended 30 June 2024 Six months ended 30 June 2023
Profit for the period 2.2 7.8
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (1.0) (3.8)
Items that will not be reclassified subsequently to profit or loss: - -
Other comprehensive loss, net of tax (1.0) (3.8)
Total comprehensive income for the period 1.2 4.0
Attributable to:
Equity shareholders 1.1 3.9
Non-controlling interests 0.1 0.1
Total comprehensive income for the period 1.2 4.0
The above condensed consolidated income statement and statement of
comprehensive income should be read in conjunction with the accompanying
notes.
XP Power Limited
Condensed Consolidated Balance Sheet
As at 30 June 2024
£m Note 30 June 2024 31 December 2023
ASSETS
Current assets
Cash and bank balances 13.0 12.0
Inventories 81.7 91.6
Trade receivables 34.9 43.1
Bond receivables 37.6 36.7
Other current assets 5.5 8.1
Current income tax receivable 0.6 0.5
Total current assets 173.3 192.0
Non-current assets
Cash and bank balances 1.4 1.4
Goodwill 75.2 75.6
Intangible assets 9 63.8 63.1
Property, plant and equipment 10 64.3 59.5
Right-of-use assets 53.0 54.0
Deferred income tax assets 1.0 0.7
Total non-current assets 258.7 254.3
Total assets 432.0 446.3
LIABILITIES
Current liabilities
Current income tax liabilities 2.9 5.0
Trade and other payables 41.2 48.3
Lease liabilities 1.5 1.4
Provisions 45.0 44.9
Borrowings 11 0.5 0.4
Accrued consideration 1.8 -
Total current liabilities 92.9 100.0
Non-current liabilities
Accrued consideration - 1.7
Borrowings 11 118.1 125.7
Deferred income tax liabilities 9.4 9.3
Provisions 1.2 1.0
Lease liabilities 53.2 53.3
Total non-current liabilities 181.9 191.0
Total liabilities 274.8 291.0
NET ASSETS 157.2 155.3
EQUITY
Equity attributable to equity holders of the Company
Share capital 71.2 71.2
Share-based payment reserve 2.2 2.1
Merger reserve 0.2 0.2
Translation reserve (1.9) (0.9)
Other reserve 8.2 7.6
Retained earnings 76.5 74.4
156.4 154.6
Non-controlling interests 0.8 0.7
TOTAL EQUITY 157.2 155.3
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 2024
£m
Attributable to equity holders of the Company
Share capital Share-based payment reserve Merger reserve Translation reserve Other reserve Retained earnings Total Non-controlling interests Total Equity
Balance at 1 January 2023 27.2 2.5 0.2 4.2 6.1 98.4 138.6 0.9 139.5
Exercise of share-based payment awards - (1.1) - - 1.1 - - - -
Employee share-based payment expenses, net of tax - 0.1 - - - - 0.1 - 0.1
Dividends paid (note 7) - - - - - (11.2) (11.2) (0.1) (11.3)
Future acquisitions of non-controlling interests - - - - (0.1) - (0.1) - (0.1)
Exchange difference arising from translation of financial statements of foreign operations - (0.1) - (3.6) - - (3.7) (0.1) (3.8)
Profit for the period - - - - - 7.6 7.6 0.2 7.8
Total comprehensive income for the period - (0.1) - (3.6) - 7.6 3.9 0.1 4.0
Balance at 30 June 2023 27.2 1.4 0.2 0.6 7.1 94.8 131.3 0.9 132.2
Balance at 1 January 2024 71.2 2.1 0.2 (0.9) 7.6 74.4 154.6 0.7 155.3
Exercise of share-based payment awards - (0.7) - - 0.7 - - - -
Employee share-based payment expenses, net of tax - 0.8 - - - - 0.8 - 0.8
Future acquisition of non-controlling interest - - - - (0.1) - (0.1) - (0.1)
Exchange difference arising from translation of financial statements of foreign operations - - - (1.0) - - (1.0) - (1.0)
Profit for the period - - - - - 2.1 2.1 0.1 2.2
Total comprehensive income for the period - - - (1.0) - 2.1 1.1 0.1 1.2
Balance at 30 June 2024 71.2 2.2 0.2 (1.9) 8.2 76.5 156.4 0.8 157.2
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 2024
£m Six months ended 30 June 2024 Six months ended 30 June 2023
Cash flows from operating activities
Profit after income tax 2.2 7.8
Adjustments for:
- Taxation 1.0 3.1
- Amortisation and depreciation 9.3 9.2
- Net finance expense 5.9 6.4
- Share-based payment expenses 0.6 0.2
- Fair value gain on derivative financial instruments - (0.2)
- Impairment loss on intangible assets - 0.1
- Unrealised currency translation (gain)/loss (0.4) 1.0
- Provision for doubtful debt 0.1 -
Change in the working capital:
- Inventories 10.3 2.5
- Trade and other receivables 11.1 (2.9)
- Trade and other payables (7.1) 1.4
- Provision for liabilities and other charges (0.2) 0.2
Cash generated from operations 32.8 28.8
Income tax paid, net of refund (3.1) (1.3)
Net cash provided by operating activities 29.7 27.5
Cash flows from investing activities
Purchases and construction of property, plant and equipment (7.7) (8.8)
Additions of product development costs (5.5) (4.6)
Additions of software and software under development (0.1) (0.3)
Proceeds from disposal of property, plant and equipment 0.2 -
Interest received - 0.8
Net cash used in investing activities (13.1) (12.9)
Cash flows from financing activities
Proceeds from borrowings - 9.7
Repayment of borrowings (8.9) -
Principal payment of lease liabilities (0.8) (0.6)
Interest paid (6.0) (7.6)
Dividends paid to equity holders of the Company - (11.2)
Dividends paid to non-controlling interests - (0.1)
Bank deposits pledged - (0.4)
Net cash used in financing activities (15.7) (10.2)
Net increase in cash and cash equivalents 0.9 4.4
Cash and cash equivalents at beginning of financial period 12.0 22.1
Effects of currency translation on cash and cash equivalents 0.1 (1.0)
Cash and cash equivalents at end of financial period 13.0 25.5
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. Basis of preparation
The condensed consolidated financial statements for the period ended 30 June
2024 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 issued by the International Accounting Standards Board.
The condensed consolidated financial statements should be read in
conjunction with the annual financial statements for the year ended 31
December 2023 which have been prepared in accordance with International
Financial Reporting Standards (‘IFRSs’) as issued by the International
Accounting Standards Board (IFRS as issued by the IASB) and Singapore
Financial Reporting Standards (International) (SFRS(I)s’).
The condensed consolidated interim financial statements have not been
audited.
1. Going concern
The Group has available to it a US $ denominated Revolving Credit Facility
(RCF) of $210m (£165m). The facility matures in December 2026 and therefore
is committed throughout the minimum period for which going concern is
assessed, which is 12 months from the date of signing these condensed
consolidated financial statements.
At 30 June 2024, the Group had drawn down $151m (£119m) against this, leaving
undrawn facility headroom of more than £50 million.
Given that the Group's borrowings are US $ denominated, net debt and therefore
the leverage ratio can be impacted by future movements in the US $ exchange
rate. In both Cases, the US $ exchange rate is assumed to $1.269.
As part of its going concern review, the Group has developed both Base Case
and Downside Case financial forecasts, with the latter representing a severe
but plausible downside scenario, assessing forecast liquidity and covenant
compliance in each case.
Two financial covenants apply to the Group’s Revolving Credit Facility:
* Leverage (as defined in Note 5) of not more 3.5x for each calendar quarter
until 31 December 2024 and not more than 3.0x thereafter.
* Interest Cover (as defined in Note 5) as follows, following a recent
amendment to specifically accommodate going concern testing requirements:
Interest Cover Not less than
Q3 2024 3.00
Q4 2024 2.75
Q1 2025 2.75
Q2 2025 2.50
Q3 2025 2.75
Q4 2025 3.25
Q1 2026 3.50
Q2 2026 and onwards 4.00
The Group is currently experiencing an unusual slowdown in demand across all
three of its market sectors. Monthly revenue and order intake have been
relatively stable during the first half of 2024, suggesting market conditions
are in the process of stabilising. The key assumption in any forecast scenario
is therefore the monthly revenue level at which market conditions stabilise
and for how long these conditions persist before markets recover.
Specifically, this requires assumptions to be made regarding the timing and
impact of the expected recovery in demand for Semiconductor Manufacturing
Equipment, which has been in an industry-wide downcycle since the end of 2022,
as well as the extent and duration of channel destocking within the Healthcare
and Industrial Technology sectors. We are confident that the Group’s revenue
will grow long-term due to the nature of the markets we operate in and our
attractive positions within them but it is difficult to be precise about the
timing of the return to growth. The Base Case and Downside Case make differing
assumptions in this regard.
Base Case
The Group’s Base Case scenario is that channel destocking within the
Healthcare and Industrial Technology sectors, which has reduced Group revenue
throughout H1 2024, continues until the end of Q3 2024. This leads to an
improvement in quarterly revenue between Q3 and Q4 2024. The Base Case also
assumes that demand for Semiconductor Manufacturing Equipment improves from
the start of H1 2025 onwards. These assumptions result in a c.4% improvement
in revenue from H1 to H2 2024 and 8% improvement from 2024 to 2025.
The Base Case assumes our interest cost in H2 2024 will be slightly higher
than H1 2024 due to increased borrowing margin. Total 2024 interest cost is
projected to be higher than 2023 as the benefit to interest costs from lower
borrowings is offset by an increase in lease interest costs from our new
facility in Silicon Valley.
The Base Case assumes that the Secured Overnight Financing Rate ("SOFR")
remains at current level for the remainder of 2024 and 2025. The Group has
capped the interest rate applicable to the majority of its borrowings at a
rate slightly above the current SOFR. In the Base Case, the Group remains in
full compliance with its financial covenants and with ample liquidity
throughout the going concern assessment period.
The lowest point of headroom in the Leverage Ratio covenant is at 30 September
2024. EBITDA would need to fall c.29% short of expectations in the period 1
October 2023 to 30 September 2024 for a breach to occur.
The lowest point of headroom in the Interest Cover covenant is at 31 December
2024. EBITDA would need to fall c.24% short of expectations in the period 1
January to 31 December 2024 for a breach to occur.
Downside Case
In the Downside Case, channel destocking in the Healthcare and Industrial
Technology sectors continues until the end of H1 2025, 9 months longer than
the Base Case. It assumes demand from Semiconductor Manufacturing Equipment
improves from the start of H2 2025, 6 months longer than the Base Case.
This results in a 5% decline in revenue between H1 and H2 2024 and total 2024
revenue 4% lower than the Base Case. The delay of the recovery until 2025
across all sectors means that the 2025 revenue is also 4% lower than in the
Base Case.
The Downside Case assumes interest costs to be similar with the Base Case.
The interest rate assumption is the same as the Base Case.
In the Downside Case, the Group remains in compliance with its financial
covenants with ample liquidity throughout the going concern assessment period.
The lowest point of headroom in the Leverage Ratio covenant is at 30 June
2025. EBITDA would need to fall c.10% short of expectations in the period 1
July 2024 to 30 June 2025 for a breach to occur.
The lowest point of headroom in the Interest Cover covenant is at 31 March
2025. EBITDA would need to fall c.6% short of expectations in the period 1
April 2024 to 31 March 2025 for a breach to occur.
The Directors are confident that the Base Case and Downside Case provide an
appropriate basis for the going concern assumption to be applied in preparing
the financial statements. Therefore, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. The Group, therefore, continues to adopt
the going concern basis in preparing its condensed consolidated financial
statements.
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
2023.
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 2023.
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.
XP Power Limited
Notes to the condensed consolidated financial statements
1. Segmented and revenue information
The Board of Directors monitors the business based on the three primary
geographical areas: North America, Europe and Asia. All geographic locations
market the same classes 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 business lines and geographical regions.
Analysis by class of customer
The revenue by class of customer is as follows:
Six months ended 30 June 2024
£m
Europe North America Asia Total
Primary geographical markets
Semiconductor Manufacturing Equipment 1.9 37.4 6.4 45.7
Industrial Technology 29.6 16.1 5.2 50.9
Healthcare 11.8 16.2 2.5 30.5
43.3 69.7 14.1 127.1
Six months ended 30 June 2023
£m
Europe North America Asia Total
Primary geographical markets
Semiconductor Manufacturing Equipment 2.5 43.7 8.2 54.4
Industrial Technology 35.4 25.5 7.8 68.7
Healthcare 14.3 19.6 3.2 37.1
52.2 88.8 19.2 160.2
XP Power Limited
Notes to the condensed consolidated financial statements
1. Segmented and revenue information (continued)
Reconciliation of segment results to profit for the period:
£m Six months ended 30 June 2024 Six months ended 30 June 2023
Europe 11.6 12.3
North America 19.1 28.4
Asia 5.5 6.8
Segment results 36.2 47.5
Research and development (7.9) (11.0)
Manufacturing (5.1) (5.3)
Corporate costs (9.7) (9.4)
Adjusted operating profit 13.5 21.8
Net finance expenses (5.9) (6.4)
Adjustments (4.4) (4.5)
Profit before tax 3.2 10.9
Taxation (1.0) (3.1)
Profit for the period 2.2 7.8
£m At 30 June 2024 At 31 December 2023
Total assets
Europe 77.6 79.2
North America 233.8 245.9
Asia 119.0 120.0
Segment assets 430.4 445.1
Unallocated deferred and current income tax 1.6 1.2
Total assets 432.0 446.3
1. Reconciliation of non-statutory 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 (Adjustments). Such items may include, but are not
limited to, costs associated with business combinations, amortisation of
intangible assets arising from business combinations and restructuring costs.
In addition, the Group presents an Adjusted Profit For The Period measure by
adjusting for certain tax charges and credits which management believe to be
significant by virtue of their size, nature, or incidence or which have a
distortive effect.
The Group uses these and other adjusted measures to evaluate performance and
as a method to provide shareholders with clear and consistent reporting.
XP Power Limited
Notes to the condensed consolidated financial statements
1. Reconciliation of non-statutory measures (continued)
(i) Adjusted Operating Profit, Net Finance Expense, Profit Before Tax,
Tax and Profit For The Period
Six months ended 30 June 2024
£m Operating profit Net finance expense Profit before tax Taxation Profit for the period
Statutory result 9.1 (5.9) 3.2 (1.0) 2.2
Adjusted for:
Restructuring costs 1.1 - 1.1 - 1.1
Costs relating to legal dispute 0.6 - 0.6 - 0.6
Amortisation of intangible assets acquired from business combinations 1.6 - 1.6 - 1.6
Global supply chain transformation 0.9 - 0.9 - 0.9
Bid defence costs 0.2 - 0.2 - 0.2
Non-recurring tax benefits - - - (0.7) (0.7)
Adjusted result 13.5 (5.9) 7.6 (1.7) 5.9
Six months ended 30 June 2023
£m Operating profit Net finance expense Profit before tax Taxation Profit for the period
Statutory result 17.3 (6.4) 10.9 (3.1) 7.8
Adjusted for:
Restructuring costs 1.5 1.0 2.5 - 2.5
Costs relating to legal dispute 1.4 - 1.4 - 1.4
Amortisation of intangible assets acquired from business combinations 1.6 - 1.6 - 1.6
Costs related to Enterprise Resource Planning system implementation 0.2 - 0.2 - 0.2
Fair value gain on derivative financial instruments (0.2) - (0.2) - (0.2)
Gain on modifications of revolving credit facility - (0.6) (0.6) - (0.6)
Non-recurring tax benefits - - - (0.9) (0.9)
Adjusted result 21.8 (6.0) 15.8 (4.0) 11.8
(ii) Adjusted Operating Cash Flow and Conversion %
£m Six months ended 30 June 2024 Six months ended 30 June 2023
Cash generated from operations 32.8 28.8
Adjusted for cash flows in respect of:
Costs relating to legal dispute 1.0 1.2
Restructuring costs 0.7 -
Global supply chain transformation 0.4 -
Adjusted Operating Cash Flow 34.9 30.0
Adjusted Operating Profit 13.5 21.8
Adjust Operating Cash Conversion 259% 138%
XP Power Limited
Notes to the condensed consolidated financial statements
1. Reconciliation of non-statutory measures (continued)
(iii) Adjusted LTM EBITDA
£m Twelve months ended 30 June 2024 Twelve months ended 30 June 2023
Profit before tax 3.5 28.1
Adjusted for:
Net finance expense 12.8 10.3
Depreciation 9.0 10.0
Amortisation 11.2 9.1
LTM EBITDA 36.5 57.5
Adjusted for:
Restructuring costs 4.0 0.8
Costs relating to legal dispute 1.3 5.8
Global supply chain transformation 3.6 -
Impairment loss on intangible assets 2.0 0.3
Costs related to Enterprise Resource Planning system implementation 0.1 0.4
Acquisition costs 0.1 1.5
Foreign exchange gain on Euro-denominated loan drawn down to finance acquisition - (0.8)
Revolving credit facility fees - (0.2)
Fair value loss/(gain) on derivative financial instrument 0.1 (0.6)
Bid defence costs 0.2 -
Adjusted LTM EBITDA 47.9 64.7
XP Power Limited
Notes to the condensed consolidated financial statements
1. Reconciliation of non-statutory measures (continued)
(iv) Net Debt
£m At 30 June 2024 At 30 June 2023
Borrowings
Current 0.5 0.7
Non-current 118.1 174.6
Total borrowings 118.6 175.3
Cash and bank balances
Cash at bank and on hand 14.3 26.8
Short-term bank deposits 0.1 0.1
Total cash and bank balances 14.4 26.9
Net Debt 104.2 148.4
(v) Leverage (Net Debt: Adjusted LTM EBITDA)
£m At 30 June 2024 At 30 June 2023
Net Debt (Note 5(iv)) 104.2 148.4
Adjusted LTM EBITDA (Note 5(iii)) 47.9 64.7
Leverage (Net Debt: Adjusted LTM EBITDA) 2.2x 2.3x
(vi) Interest Cover (Adjusted LTM EBITDA : Adjusted LTM Net Finance
Expense)
£m Twelve months ended 30 June 2024 Twelve months ended 30 June 2023
Adjusted LTM EBITDA (Note 5(iii)) 47.9 64.7
Net finance expense 12.8 10.3
Adjusted for:
Restructuring costs 1 (1.4) (1.1)
Gain on modification of revolving credit facility - 0.6
Adjusted LTM Net Finance Expense 11.4 9.8
Interest Cover (Adjusted LTM EBITDA : Adjusted LTM Net Finance Expense) 4.2x 6.6x
1 Restructuring cost consist only of interest on lease liabilities related to
lease for office spaces in the United States of America.
XP Power Limited
Notes to the condensed consolidated financial statements
1. Taxation
The average effective tax rate applied to Adjusted Profit Before Tax for the
period is 22% (2023: 25%). This is based on an estimate of the full year
effective tax rate by jurisdiction.
1. Dividends
Amounts recognised as distributions to equity holders of the Company in the
period:
Six months ended 30 June 2024 Six months ended 30 June 2023
Pence per share £ Millions Pence per share £ Millions
Prior year third quarter dividend paid - - 21.0 4.1
Prior year final dividend paid - - 36.0 7.1
Total - - 57.0 11.2
1. Earnings per share
Earnings per share attributable to equity holders of the company arise from
continuing operations as follows:
£m Six months ended 30 June 2024 Six months ended 30 June 2023
Earnings
Earnings for the purposes of basic and diluted earnings per share (profit for the period attributable to equity holders of the company) 2.1 7.6
Restructuring costs 1.1 2.5
Costs relating to legal dispute 0.6 1.4
Amortisation of intangibles acquired from business combinations 1.6 1.6
Global supply chain transformation 0.9 -
Costs related to Enterprise Resource Planning system implementation - 0.2
Fair value gain on derivative financial instruments - (0.2)
Gain on modifications of revolving credit facility - (0.6)
Bid defence costs 0.2 -
Non-recurring tax benefits (0.7) (0.9)
Earnings for Adjusted Earnings Per Share 5.8 11.6
Number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands) 23,700 19,555
Effect of potentially dilutive share options (thousands) 39 58
Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 23,739 19,613
Earnings per share from operations:
Basic 8.9p 38.9p
Adjusted Basic 24.5p 59.3p
Diluted 8.8p 38.7p
Adjusted Diluted 24.4p 59.1p
XP Power Limited
Notes to the condensed consolidated financial statements
1. Intangible assets
Product Development costs Brand Trademarks Technology Customer relationships Customer contracts Software Assets under development Total
£ Millions
Cost
At 31 December 2023 51.0 1.8 1.1 7.9 24.8 2.6 24.2 25.6 139.0
Additions - - - - - - 0.1 5.5 5.6
Disposal - - - - - - (0.1) - (0.1)
Transfer 0.2 - - - - - - (0.2) -
Reclassification - - - - - - - (0.9) (0.9)
Foreign currency translation 0.2 (0.1) - - (0.1) - 0.2 0.2 0.4
At 30 June 2024 51.4 1.7 1.1 7.9 24.7 2.6 24.4 30.2 144.0
Accumulated amortisation and impairment losses
At 31 December 2023 35.9 0.8 1.0 4.4 13.6 1.9 8.3 10.0 75.9
Amortisation charge for the year 2.1 0.1 - 0.4 0.8 0.3 1.1 - 4.8
Disposal - - - - - - (0.1) - (0.1)
Reclassification (0.9) - - - - - - - (0.9)
Foreign currency translation 0.2 - - - 0.1 - 0.1 0.1 0.5
At 30 June 2024 37.3 0.9 1.0 4.8 14.5 2.2 9.4 10.1 80.2
Carrying amount
At 30 June 2024 14.1 0.8 0.1 3.1 10.2 0.4 15.0 20.1 63.8
At 31 December 2023 15.1 1.0 0.1 3.5 11.2 0.7 15.9 15.6 63.1
The amortisation period for development costs incurred on the Group’s
products varies between five 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 four
to nine years.
1. Property, plant and equipment
£ Millions Freehold land Buildings Plant and equipment Motor vehicles Building improvements Assets under construction Total
Cost
At 31 December 2023 1.5 18.2 38.1 0.2 26.9 7.6 92.5
Additions - 0.3 1.0 - - 6.4 7.7
Disposals - - (0.5) (0.1) (1.8) - (2.4)
Transfers - - 1.7 - 0.9 (2.6) -
Foreign currency translation - 0.1 - - 0.2 (0.2) 0.1
At 30 June 2024 1.5 18.6 40.3 0.1 26.2 11.2 97.9
Accumulated depreciation
At 31 December 2023 - 5.3 22.9 0.2 4.6 - 33.0
Depreciation charge - 0.3 2.0 - 0.5 - 2.8
Disposals - - (0.3) (0.1) (1.8) - (2.2)
At 30 June 2024 - 5.6 24.6 0.1 3.3 - 33.6
Carrying amount
At 30 June 2024 1.5 13.0 15.7 - 22.9 11.2 64.3
At 31 December 2023 1.5 12.9 15.2 - 22.3 7.6 59.5
Assets under construction pertains to cost incurred for the building of
Malaysia factory of £7.6 million and renovation of the office space in North
America which is due for completion in 2024 of £3.6 million.
XP Power Limited
Notes to the condensed consolidated financial statements
1. Borrowings
As at 30 June 2024 the Group’s borrowings had been drawn down from a US$255m
Revolving Credit Facility (“RCF”) (subsequently reduced to $210m
concurrent with the renegotiation of covenants referred to below). The RCF was
committed until June 2026 and had no fixed repayment terms until maturity. The
finance costs on the RCF are priced based on the Secured Overnight Financing
Rate (SOFR) administered by the Federal Reserve Bank of New York plus a
margin. The margin applicable to drawn amounts range from 1.5-3.25%, depending
on the Net Debt : Adjusted LTM EBITDA ratio for the previous quarter. The
non-utilisation fee payable for the undrawn element of the facility is priced
at 40% of the margin applicable to drawn amounts.
The covenants attaching to the RCF were renegotiated in July 2024. The
interest cover (Adjusted LTM EBITDA: Adjusted LTM Net Finance Expense)
covenant has been reduced to a range between 2.50x to 3.50x until maturity of
the facility. Subsequent to the balance sheet date, the maturity date of the
RCF has also been extended to December 2026 and therefore repayment will be
due in the third year after the date of these accounts.
As at 30 June 2024, the borrowings were repayable as follows:
£m At 30 June 2024 At 31 December 2023
On demand or within one year 0.5 0.4
In the second year 118.1 -
In the third year - 125.7
Total 118.6 126.1
The timing of repayment is subject to the compliance of loan covenants and any
non-compliance can result in earlier repayment. All loan covenants have been
complied with as at 30 June 2024 (refer to Note 2 Going Concern for further
information).
1. Foreign exchange rates
Exchange rates applied in these condensed consolidated financial statements
are the average for the six month period for Income Statement items (including
£1/USD1.2636, £1/€1.1679, £1/SGD1.7007) and are the closing rate for
Balance Sheet items (including £1/USD1.2640, £1/€1.1802, £1/SGD1.7135 at
30 June 2024).
1. Principal risks
The Group has well-established risk management processes to identify and
assess risks. The Group’s principal risks are regularly reviewed by the
Board and mapped onto a risk universe, where risk mitigation or reduction can
be tracked and managed. This facilitates further discussion regarding risk
appetite and identifies the risks that require greater attention. Details of
our risk management framework are set out in the Group’s Annual Report &
Accounts for the year ended 31 December 2023 on pages 52 to 59.
The Board has reviewed the principal risks as of 30 June 2024 against the
context of the environment in which the Group operates and the operational
developments during the first six months of the financial year and the outlook
for the remainder of the financial year. There is no change in principal risks
as disclosed in the Group’s Annual Report & Accounts:
1. Disruption to manufacturing
2. Supply chain risks
3. Market/customer related risks
4. Product-related risks
5. IT/data
6. Funding/treasury
7. Legal & regulatory
8. M&A
9. People-related
10. Climate-related
XP Power Limited
Directors’ responsibility statement
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 issued by the International Accounting Standards
Board; 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:
Jamie Pike Non-Executive Chair
Gavin Griggs Chief Executive Officer
Matt Webb Chief Financial Officer
Andy Sng Executive Vice President, Asia
Polly Williams Senior Independent Director
Pauline Lafferty Non-Executive Director
Sandra Breene Non-Executive Director
Amina Hamidi Non-Executive Director
By order of the Board:
Gavin Griggs Matt Webb
Chief Executive Officer Chief Financial Officer
6 August 2024
Independent review report to XP Power Limited
Report on review of interim financial information
We have reviewed the accompanying condensed consolidated financial information
of XP Power Limited (“the Company”) and its subsidiaries (“the Group”)
set out on pages 13 to 26, which comprise the condensed consolidated balance
sheet of the Group as at 30 June 2024, the condensed consolidated income
statement, statement 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 issued by
the International Standards Board. 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 2024, which comprise the “Interim Results”
set out on pages 1 to 3, “Chief Executive Officer’s Review” set out on
pages 4 to 8 and “Chief Financial Officer’s Review” set out on pages 9
to 12 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 issued by
the International Accounting Standards Board.
Restriction on Distribution and Use
This report has been prepared solely for the Company in accordance with the
letter of engagement between us and the Company. We do not accept or assume
liability or responsibility to anyone other than the Company for our work or
this report.
PricewaterhouseCoopers LLP
Public Accountants and Chartered Accountants
Singapore,
6 August 2024
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