TIDMXPP
1 March 2018
XP Power Limited
("XP Power" or "the Group" or the "Company")
Annual Results for the year ended 31 December 2017
XP Power, one of the world's leading developers and manufacturers of critical
power control components for the electronics industry, today announces its
annual results for the year ended 31 December 2017.
2017 2016 Change
Highlights
Order intake GBP184.3m GBP133.5m +38%
Revenue GBP166.8m GBP129.8m +29%
Gross margin 46.5% 47.8% -130bps
Final dividend per share 29.0p 26.0p +12%
Total dividend per share 78.0p 71.0p +10%
Adjusted
Adjusted profit before tax1 GBP36.1m GBP28.6m +26%
Adjusted profit attributable to equity GBP28.5m GBP22.1m +29%
holders2
Adjusted diluted earnings per share2 147.0p 115.3p +27%
Reported
Operating cash flow GBP29.7m GBP27.9m +6%
Net (debt)/cash GBP(9.0)m GBP3.7m N/A
Profit before tax GBP32.2m GBP27.8m +16%
Profit attributable to equity holders GBP28.3m GBP21.3m +33%
Diluted earnings per share 146.0p 111.2p +31%
1Adjusted for GBP3.3 million (2016: GBP0.4 million) for acquisition costs, both
completed and aborted and intangibles amortisation of GBP0.6 million (excluding
amortisation for Development costs) (2016: GBP0.4 million)
2Adjusted for GBP3.3 million (2016: GBP0.4 million) for acquisition costs, both
completed and aborted, intangibles amortisation of GBP0.6 million (excluding
amortisation for Development costs) (2016: GBP0.4 million) and non-recurring tax
benefits of GBP3.7 million (2016: nil)
* Record order intake, revenues and earnings achieved in 2017
* Order intake of GBP184.3 million (2016: GBP133.5 million) - an increase of 38%
(31% in constant currency)
* Full year revenues increased by 29% (22% in constant currency) to GBP166.8
million (2016: GBP129.8 million)
* Growth in all industry sectors and geographies
* Acquisition of Comdel adds Radio Frequency power capability to our product
portfolio expanding our available market
* Revenues from XP Power's own-designed products increased by 34% (24% in
constant currency) to GBP127.4 million (2016: GBP95.3 million) to reach a
record 76% of total revenue (2016: 73%)
* Sales of high efficiency XP "Green Power" products grew by 31% (22% in
constant currency) in 2017 to GBP39.7 million (2016: GBP30.2 million)
* Balance sheet remains robust, with net debt of GBP9.0 million at year end
(2016: net cash of GBP3.7 million)
* Commenced construction of a second production facility in Vietnam to expand
manufacturing capacity - new factory to be completed by end 2018
James Peters, Chairman, commented:
"We are encouraged by the strong performance in 2017 and a good start to 2018.
The Group entered 2018 with a strong order backlog and will also benefit from a
full year's trading from the acquired Comdel business which expands our
addressable market.
Although we cannot be immune from all external economic shocks resulting from
cyclicality in the capital equipment markets we serve, we are optimistic
regarding our prospects for 2018."
Enquiries:
XP Power
Duncan Penny, Chief Executive Officer +44 (0)7776 178018
Gavin Griggs, Chief Financial Officer +44 (0)7824
144733
Citigate Dewe Rogerson
Kevin Smith/Jos Bieneman +44 (0)20 7638
9571
XP Power designs and manufactures power controllers, the essential hardware
component in every piece of electrical equipment that converts power from the
electricity grid into the right form for equipment to function.
XP Power typically designs power control solutions into the end products of
major blue-chip OEMs, with a focus on the industrial (circa 39% of sales),
healthcare (circa 31% sales) and technology (circa 30% of sales) sectors. Once
designed into a programme, XP Power has a revenue annuity over the life cycle
of the customer's product which is typically 5 to 7 years depending on the
industry sector.
XP Power has invested in research and development and its own manufacturing
facilities in China and Vietnam, to develop a range of tailored products based
on its own intellectual property that provide its customers with significantly
improved functionality and efficiency.
Headquartered in Singapore and listed on the Main Market of the London Stock
Exchange since 2000, XP Power serves a global blue-chip customer base from 27
locations in Europe, North America and Asia.
For further information, please visit xppower.com
Chairman's Statement
Our Progress in 2017
2017 was another year of significant progress in the development of the
Company. We have continued to execute our strategy well and favourable market
conditions, combined with new design wins entering into production, have driven
another set of strong results. We delivered record order intake, revenues,
profits and earnings per share in the year. We also acquired Comdel, another
business that significantly expands our addressable market by strengthening our
capabilities in higher power applications. We believe we now have the most
comprehensive product offering in our industry, making XP Power a compelling
partner to provide power solutions to our target customers to power their
critical systems.
Results
Our financial performance in the year was strong. Revenues were GBP166.8 million,
exceeding the prior year of GBP129.8 million. This was an increase of 22% in
constant currency. Order intake also set a new record of GBP184.3 million,
exceeding the GBP133.5 million achieved in 2016, and representing a 31% increase
in constant currency.
Reported profit before tax was GBP32.2 million (2016: GBP27.8 million). After
adding back acquisition costs, both completed and aborted, of GBP3.3 million
(2016: GBP0.4 million) and amortisation of intangible assets of GBP0.6 million
(2016: GBP0.4 million), adjusted profit before tax was GBP36.1 million (2016: GBP28.6
million), an increase of 26% over that reported in 2016. Basic earnings per
share increased by 32% to 148.3 pence (2016:112.0 pence). Diluted adjusted
earnings per share increased by 27% to 147.0 pence (2016: 115.3 pence).
Acquisition
We have been clear for some time that we intend to use the strength of our
balance sheet and cash generation to acquire complementary businesses that
expand our product portfolio and engineering capabilities. I was pleased to
report the acquisition of Comdel, a company specialising in Radio Frequency
(RF) power, in September 2017. This strategic acquisition fulfils our ambition
to add a high power capability to our product portfolio and is an excellent fit
with the rest of the XP Power family. We are very excited about the prospects
for these products and the additional value we can now provide to our
customers.
Board Changes
I would like to welcome Gavin Griggs, who joined us on 31 October 2017, to the
Board as Chief Financial Officer. Gavin has worked in a range of acquisitive
businesses, both public and private and with an international footprint, most
recently Daisy Group Ltd, where he was Group Finance Director. Gavin's
wide-ranging financial, commercial and M&A experience, will be an asset to XP
Power in the next phase of our development.
In December 2017 Peter Bucher, a non-executive director, informed the Board
that he would retire in December 2018 and step down from the Board.
We will begin a search for a new Non-Executive Director later this year.
Dividend
Our continued strong financial performance, strong cash flows and confidence in
the Group's long-term prospects have enabled us to increase dividends
consistently over a sustained period. The Board is recommending a final
dividend of 29 pence per share for the fourth quarter of 2017. This dividend
will be payable to members on the register on 16 March 2018 and will be paid on
20 April 2018. When combined with the interim dividends for the previous
quarters, the total dividend for the year will be 78 pence per share (2016: 71
pence), an increase of 10%.
The compound average growth rate of our dividend has been 15% over the last ten
years, demonstrating the Board's commitment to our progressive dividend policy.
Our People and Our Values
The success of an organisation is dependent on the people and talent within it.
We have significant strength and depth within our Company, with the majority of
our Executives boasting long tenures with XP Power. We have conducted annual
employee engagement surveys since 2015 and I am pleased that we have shown
strong scores each time we repeat the survey, having taken actions to address
any issues arising from the results of the prior survey. One of the main
findings from these employee surveys was that our employees are proud to be
part of our Company, highlighting the significant engagement we have between
the business and our people. Our cultural survey score is one of our
non-financial key performance indicators.
As the Company grows we continually look to acquire more talent across the
business to build even greater strength and depth. A key focus is engineering,
which remains a constraint on our ability to address all the opportunities we
see before us. Recruiting and on-boarding more engineering colleagues will be a
priority for 2018.
Manufacturing Capacity
Our continued growth means we need to add manufacturing capacity. We therefore
commenced construction of a second manufacturing facility in Ho Chi Minh City,
Vietnam in October 2017, which we expect to complete in the second half of
2018.
Outlook
We are encouraged by the strong performance in 2017 and a good start to 2018.
The Group entered 2018 with a strong order backlog and will also benefit from a
full year's trading from the acquired Comdel business which expands our
addressable market.
Although we cannot be immune from any external economic shocks resulting from
cyclicality in the capital equipment markets we serve, we are optimistic
regarding our prospects for 2018.
We are continuing to build a leading position in our industry to realise our
vision of becoming the first choice power solutions provider delivering the
ultimate experience to our customers and to our people.
James Peters
Chairman
Performance: Operational Review
Review of Our Year
XP Power has enjoyed another excellent year, achieving record order intake,
revenues, profits and earnings per share. Improvement in our underlying markets
started to take hold from the third quarter of 2016 and continued throughout
2017. Layered on top of this recovery were new design wins entering production,
particularly in the healthcare sector, and a strong upturn in the semiconductor
manufacturing equipment market. These factors combined to produce an excellent
set of results. We continued to move our product portfolio up to higher power
and technically more complex applications and to expand the number of design
wins with higher engineering solutions content.
We announced the acquisition of Comdel in September 2017. This business gives
XP Power a foothold in the Radio Frequency (RF) power market and meets our
strategic aim of moving up the power scale to expand our addressable market and
provide a broader product offering to our key customers.
We made strong progress toward expanding our manufacturing capacity in Vietnam
when we commenced construction of an additional facility at our existing Ho Chi
Minh City site during the year. We expect this new facility to come on stream
in the second half of 2018. The expected capacity increase from this new
facility will be phased over a number of years but has the potential to double
our existing Vietnamese manufacturing capabilities in the longer term.
We continue to be excited by the future prospects for our business.
Marketplace
All industry sectors and all geographies experienced revenue growth in 2017
over 2016 and, significantly, sequential growth in the second half of 2017 over
the first half. The order performance was also strong, with order intake up 38%
on the prior year (2016: 21%) and 31% ahead in constant currency (2016: 9%)
which resulted in a book to bill ratio of 1.11 (2016: 1.03), demonstrating the
strength of the 2017 performance. We enter 2018 with good momentum and a
healthy order book.
During 2017 we specifically targeted the semiconductor manufacturing equipment
market. This market is traditionally cyclical and is currently enjoying a
strong upturn which has benefitted the Group. Despite its historic cyclicality
this market remains highly attractive due to its robust fundamentals, which are
being driven by the proliferation of applications involving the internet of
things (IoT), augmented intelligence (AI), autonomous vehicles and big data.
North America revenues were US$121.3 million in 2017 (2016: US$93.7 million),
an increase of 29%. The acquisition of Comdel at the end of September 2017
contributed US$5.4 million (2016: nil) to North American revenues. As well as a
general recovery in the capital equipment markets, our North American business
benefitted from a very strong performance in the semiconductor manufacturing
equipment sector which contributed US$37.3 million to revenues (2016: US$20.8
million). Order intake in North America was also very strong at US$139.2
million (2016: US$98.6 million), an increase of 41%. The acquisition of Comdel
contributed US$7.7 million (2016: nil) to North American order intake in 2017.
The strong book to bill ratio of 1.15 for North America bodes well for 2018.
Our European business grew by 16% to GBP57.5 million (2016: GBP49.4 million) which
is the third successive year of growth. The industrial, healthcare and
technology sectors all saw growth in Europe but healthcare showed the highest
growth rate at 27%, as a number of significant new programmes at blue-chip
customers entered production.
Asia revenues grew by 18% in 2017 to US$19.0 million (2016: US$16.1 million).
Healthcare displayed particularly good growth in 2017 in the Asia region.
Overall, North America represented 57% of revenue (2016: 53%), Asia represented
9% of revenue (2016: 9%) and Europe represented 34% of revenue (2016: 38%). The
average exchange rate for the US Dollar compared to Sterling was 1.28 in 2017
versus 1.38 in 2016, representing a 7% weakening of Sterling following the
Brexit vote in June 2016. This caused North America and Asia revenues to be
inflated, due to translation, but similarly all of our US Dollar denominated
product costs to also be inflated when translated to sterling. We discuss the
potential impact of the Brexit vote and foreign exchange volatility in more
detail in our Financial Review.
Every sector grew in absolute terms but technology grew most strongly due to
the strength of semiconductor manufacturing equipment sector demand, and also
by healthcare due to a number of new programme wins entering production.
Industrial represented 39% of revenue (2016: 46%), healthcare represented 31%
of revenue (2016: 29%) and technology represented 30% of revenue (2016: 25%).
All our products are designed into capital equipment so our revenues will
inevitably be affected by capital equipment cycles. This is particularly so in
the semiconductor manufacturing equipment sector which made up 17% of our
revenues in 2017 (2016: 12%), although this industry has more recently put
forward the argument that the sector will be much less cyclical in the future
due to the prevalence of semiconductor devices in our modern world. However,
our exposure to a large number of end markets helps mitigate the cyclicality in
any particular sector, producing an underlying resilience in our diversified
business model.
Adapting to the Market and the Competition
Since listing on the London Stock Exchange in 2000, XP Power has evolved from a
specialist distributor of power conversion products to a designer and then
manufacturer of power solutions for the industrial, healthcare and technology
markets.
We continue to perform well against our traditional established competition.
Our broad range of standard products, now augmented by recent acquisitions, and
excellent customer service delivered by the largest direct sales force in our
industry is a compelling proposition. We expect future competitors to emerge
from Asia as companies with low cost manufacturing and engineering attempt to
enter parts of the industrial and healthcare markets in Europe and North
America. We need to continually adapt our product offering and services to
respond to this threat.
Low cost Asian competitors continue to become more prevalent, particularly in
the low power/low complexity end of the market. It is straightforward to source
low cost/low power products directly from Asian manufacturers. Engineering
solutions are not so easily managed remotely and work most effectively when
situated close to the customer so design discussions and design reviews can
take place face-to-face. We continue to add more and more value to our
customers as we expand our engineering service groups across the globe.
As well as providing a higher content of engineering solutions we have moved
our product portfolio up in terms of power level and complexity to help protect
our business from low cost Asian competition, which remains a threat.
Specifically, we have expanded the capabilities within our product portfolio
with the acquisition of Comdel which gives us Radio Frequency (RF) power at
high power levels.
We are building a broad and compelling product offering which will make us an
increasingly attractive partner to leading companies in the industrial,
healthcare and technology sectors in order to power their mission-critical
applications.
Strategic Progress
We have followed a consistent strategy which has enabled us to produce strong
results over a sustained period of time. The fundamental essence of the
strategy - targeting key accounts where we can add value and gaining more of
the available business in those accounts - continues to remain appropriate and
effective.
Our strategy can be summarised as follows:
* Develop a broad range of competitive products;
* Target accounts where we can add value;
* Increase vertical penetration of target accounts;
* Enhance brand awareness;
* Accelerate operational excellence;
* Lead our industry on environmental matters; and
* Make selective acquisitions in identified strategic markets or of
complementary businesses to expand our product offering.
We continue to make significant progress against each of these strategic
objectives. We believe we have the broadest, most up-to-date portfolio of
products, many of which are class-leading in terms of efficiency and low
stand-by power. Our portfolio of XP "Green" Power products grew by 31% in 2017
to GBP39.7 million (2016: GBP30.2 million) demonstrating how well these products
have been adopted by our customers. We also continue to see revenues from our
own-designed/manufactured products grow at a faster rate than those from other
products.
We consider that our transition from a specialist distribution company, through
the addition of a design capability, to designer and manufacturer is now
complete. We are now clearly recognised as both a designer and manufacturer by
key customers in our target markets. Revenues from our own-designed products
set a new record of GBP127.4 million in the year (2016: GBP95.3 million),
representing 76% of revenue (2016: 73%). We expect further improvement in the
mix of own-designed products in 2018. We are now moving our business further up
the value chain by providing our key customers with higher levels of
engineering solutions where we add value, enabling the customer to more easily
integrate the power solution into their critical systems. These services range
from providing simple voltage and connector changes, through to changes in
mechanical format, the addition of thermal management, communication to the
customer's end equipment utilising firmware and ultimately full custom designs.
This is a much more engineering intense activity but does mean we work very
closely with the customer's design engineers to provide them with a complete
power solution in the shortest possible time, delivering genuine value.
Acquisition of Comdel - Radio Frequency (RF) Power
On 29 September 2017 XP Power acquired the assets and business of Comdel, a
company based in Massachusetts, USA, specialising in Radio Frequency (RF) power
generation products which it supplies to the industrial and technology sectors.
Total consideration of US$25.2 million (GBP18.8 million) was paid in cash on
completion.
Radio frequency power is used in a variety of applications. The most common are
plasma generation for deposition or etching of materials in semiconductor
manufacturing equipment or industrial processes, ultra-sonic welding, induction
heating, and dielectric heating. RF power is also used in industrial lasers,
medical equipment and ion beam inspection equipment. Ultra-sonic welding is
used to splice wires to terminals, weld thin foils with precision, and to weld
aluminium parts in automotive applications.
Comdel and XP Power share several customers, and while there is no direct
overlap in product lines, the power supply solutions of the two companies are
highly complementary. Comdel's products and engineering capabilities will
enhance the Group's ability to implement its strategy of winning a greater
share of business from its target customers by achieving wider vertical
penetration of these accounts. As well as a product offering suitable for an
array of applications used by some of XP Power's existing customer base, Comdel
also brings a number of new customers to the Group.
The acquisition will enable XP Power to provide its existing customers with a
comprehensive product offering in RF power generation and RF matching systems,
a market segment with robust demand fundamentals but one in which we did not
previously operate.
XP-Comdel has already experienced excellent growth in orders since the
acquisition, benefitting from the favourable conditions in the semiconductor
manufacturing equipment sector.
We are delighted to welcome Comdel to the XP Power Group and are excited about
the opportunity of offering their complementary product ranges through our
global sales channel.
The combination of XP Power's existing low voltage power offering with the high
voltage/low power DC-DC converters acquired through the acquisition of EMCO in
November 2015 and now the RF power from Comdel substantially expands XP Power's
addressable market and makes us a compelling power solutions provider for many
customers involved in industrial, healthcare and semiconductor manufacturing
equipment.
Engineering Solutions
As well as expanding our product offering we have continued to expand our
engineering solutions groups in Asia, Europe and North America. Our customers
frequently require a high degree of customisation to allow the power conversion
system to operate within their end equipment or simply to make it easier for
the customer to integrate the power conversion solution into their application.
Our engineering solutions groups work closely with the customer's engineering
teams to provide these customised solutions. Speed and proximity to the
customer are critical as the power solution is often one of the last parts of
the system to be designed so is invariably one of the gating items to get the
end product to market. This is an area where XP Power add significant value to
the customer and we are seeing increasing demand for these services. The
addition of high voltage and now RF power allows our engineering solutions
groups to leverage off additional standard products as building blocks to
expand our addressable market.
We will expand these resources in 2018 to address the opportunities we continueto identify.
Research and Development
We have continued to invest in research and development to further expand our
portfolio of products and the size of our addressable market opportunity. In
particular, we increased our design engineering resource and capabilities
during 2017. We released 27 new product families in 2017 (2016: 47) and 19
(2016: 33) of these can be classified as ultra-high efficiency.
The high level of new product introductions in 2016 was driven by the addition
of a new third-party supplier to enhance our DC-DC product offering.
Manufacturing - Vietnam II
In 2012 we expanded our manufacturing footprint outside China when we started
manufacturing magnetic windings in a new Vietnamese facility situated close to
Ho Chi Minh City. This added much needed capacity and also enhanced our cost
competitiveness as production costs primarily labour in Vietnam are
significantly lower than those of our existing Chinese facility.
Production volumes of magnetics windings at our Vietnam facility have continued
to climb and in 2017 we produced 6.7 million windings compared to 4.9 million
in 2016. We have been actively transferring the lower power/lower complexity
products from China to Vietnam to improve our cost position and free up
capacity in China. In 2017, we manufactured 1.0 million power supplies in our
Vietnam facility compared to 0.4 million in 2016.
We continue to make process improvements in our manufacturing facilities, where
we are applying more lean process principles. Our internal yields continue to
improve and we have redesigned some of our processes to reduce product lead
times to provide improved customer service and reduced freight costs.
In October 2017, we commenced construction of a second manufacturing facility
on our existing site in Vietnam. Our Vietnamese site currently houses a 2,100m2
administration building and a three-storey 9,260m2 manufacturing facility. The
new Vietnamese facility will be a four-storey building with 11,000m2 of floor
area. We have spent US$0.3 million in 2017 and anticipate a further spend of
US$5.0 million in 2018 to complete the project. Our longer-term planning
indicates we will need this additional manufacturing capacity in the first half
of 2019.
Our key operational challenge in 2017 has been keeping pace with the growth in
the business. Our lean manufacturing initiatives have helped in that regard but
we still have opportunities to improve our supply chain and planning processes
to reduce our lead times and make our supply chain more agile.
Outlook for 2018
We enter 2018 with a strong order book and good momentum in our business, and a
strong position in our marketplace. We will also have the benefit of a full
twelve months contribution from the acquisition of Comdel, providing us with RF
Power capability. While we cannot be immune from any economic shocks or
cyclicality in our end markets, and in particularly the semiconductor
manufacturing equipment sector which represented 17% of our business in 2017,
we are optimistic regarding the outlook for 2018.
We remain excited and confident regarding the long-term prospects for our
Group.
Duncan Penny
Chief Executive Officer
Performance: Financial Review
XP Power delivered a strong performance in 2017. The significant order and
revenue growth, coupled with effective control of operating expenditure, has
delivered strong year-on-year growth in profits. We have also made further
investment in capital projects in order to build the capabilities necessary to
support our future sales growth. The business exited the year with a robust
financial position.
Revenue and Order Intake
The Group generated revenue growth of 29% during the year on a reported basis
(22% in constant currency and 19% on an organic constant currency basis). The
Group's performance was driven by revenue growth from XP Power's own-designed
products, a key indicator of XP Power's strategy in action, which grew 34% (or
approximately 24% in constant currency) to GBP127.4 million (2016: GBP95.3 million)
representing 76% of revenue (2016: 73%).
Regionally, North America grew strongly, up 38% (29% in constant currency and
24% on an organic constant currency basis), supported by good revenue growth in
Europe of 16% (12% in constant currency) where the Nordic markets and Italy
were stand out performers up 21% and 26% respectively, and Asia, up 26% (18% in
constant currency), with a notable performance in South Korea, which was up
50%.
This performance was driven by strong order intake of GBP184.3 million, an
increase of 38% over 2016 on a reported basis, or 31% in constant currency.
Orders and revenue for 2017 represent a full year book to bill ratio of 1.11
(2016: 1.03) reflecting the strength of customer demand across the year.
Gross Profitability
Gross margin declined slightly to 46.5% (2016: 47.8%), largely due to product
mix and the effect of the depreciation of Sterling versus the US Dollar.
Proportionately more of our product costs are denominated in US Dollars
compared to our revenues. As Sterling weakens, our reported revenue increases
due to the translation benefit but so does our cost of sales, although at a
greater rate. The result is higher gross margin in absolute terms but the gross
margin percentage declines. The average exchange rate for converting US Dollars
into Sterling in 2017 was 1.28 (2016: 1.38). Operating margins declined from
21.6% in 2016 to 19.5%. This was largely due to the weakness of Sterling.
Operating Expenses
The Group increased its investment in operating resources by 29.9% to GBP44.8
million, with the total operating costs to revenue ratio increasing by 0.3% to
26.9% (2016: 26.6%). Payroll and staff costs increased by 20.3% and were 17.1%
of revenue as a result of cost leveraging. Headcount has increased by 29.7%
(2017: 1,953; 2016: 1,506). Non-cash share-based payment charges amounted to GBP
0.1 million (2016: nil) and related to a grant to senior management under the
Long-Term Incentive Scheme during the year. Other operating costs were up 60.3%
and represented 7.0% of revenue. Depreciation and amortisation increased by
28.6% and was 2.7% of revenue, a consequence of the strong sales growth versus
prior year together with a significant element of capital expenditure being in
relation to projects which go live in the next financial year.
Exceptional Items
Exceptional items are excluded from management's assessment of profit because
by their size or nature they could distort the Group's underlying earnings. In
2017, the Group incurred GBP3.3 million of exceptional costs, predominantly
related to costs associated with acquisitions, both completed and aborted, and
GBP0.6 million for intangible assets amortisation.
Income Statement
The Group generated continuing profit before tax and exceptional items of GBP36.1
million, up 26.2% compared to last year, lower than revenue growth due to a
gross margin dilution of 130bps and an increase of 299bps investment in
operating costs.
When reviewing XP Power's performance, the Board and management team
particularly focus on adjusted results rather than statutory results. There are
a number of items that are included in statutory results but which are
considered to be one-off in nature or not representative of the Group's
performance and which are excluded from adjusted results. The tables on page 19
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 2017 and
2016.
For the current financial year, adjusted EBITDA was up 26.4% to GBP41.7 million
and adjusted operating profit was 26.4% ahead at GBP36.4 million. Both metrics
demonstrate the strength of performance that the Group delivered in 2017.
Taxation
The effective tax rate from continuing operations before exceptional items
decreased by 1220bps to 10.1% (2016: 22.3%). This arose mainly from the
recently enacted Tax Cuts and Jobs Act in the United States, and prior year
refunds predominantly in Singapore. The Tax Cuts and Jobs Act has resulted in a
non-cash tax credit in 2017 relating to the revaluation of US deferred tax
balances of circa GBP1.3 million, based on the net deferred tax liability at the
end of 2017. This credit is as a result of the reduction in the federal tax
rate from 35% to 21% and will be excluded from adjusted earnings.
The effective tax rate from continuing operations after exceptional items
decreased by 1,150bps to 11.2% (2016: 22.7%). Going forward, XP Power expects
the effective tax rate to be approximately 15-17% depending predominantly on
the regional mix of profits.
Earnings Per Share
Basic and diluted earnings per share from continuing operations before
exceptional items increased by 32% and 31% to 148.3 pence and 146.0 pence
respectively (2016: 112.0 pence and 111.2 pence). This was driven by the
increase in continuing profit before tax during the year.
After adding back costs associated with acquisitions of GBP3.3 million (2016: GBP
0.4 million), GBP3.7 million non-recurring tax benefits (2016: nil) and
intangible assets amortisation of GBP0.6 million (2016: GBP0.4 million), adjusted
diluted earnings per share was 147.0 pence (2016: 115.3 pence), an increase of
27%.
Statement of Financial Position
The Group continues to enjoy a healthy financial position including a low level
of net debt at GBP9.0 million (2016: net cash at GBP3.7 million). The reduction in
cash includes the consideration for Comdel at GBP18.2 million (excluding
associated legal fees of GBP0.2 million and consideration payable of GBP0.6
million) and the dividend paid out of GBP14.0 million, partially offset by free
cash flow generated of GBP19.4 million. Net assets increased by GBP10.0 million to
GBP116.9 million during the year (2016: GBP106.9 million).
As part of the acquisition of Comdel, XP Power entered into a revolving credit
facility of US$40 million with a further US$20 million accordion structure for
a further four years (with a potential one year extension) to September 2021.
The finance charge associated with this facility was GBP0.2 million in 2017. Due
to the average level of debt in 2018, the charge in 2018 is expected to be
double the 2017 level.
At the forthcoming AGM, the Board is proposing an ordinary resolution to change
the borrowing restriction currently stipulated in the Company's Articles of
Association in order to make it more appropriate for the size of business that
XP Power has become. The resolution proposes that Group borrowings must not
exceed the greater of GBP125 million (previously GBP50 million) and three times
adjusted capital. This is to provide sufficient headroom in the Articles to
support future growth through external borrowing, should the Board consider
this appropriate in the future. It should be noted that the Board will continue
to use net debt / EBITDA as the primary metric with which to measure and
control the Group's leverage. The Board believes this proposed amendment to
the Articles of Association to be in the best commercial interests of the
Group. As at 1st March 2018, the Group has available to its committed external
borrowing facilities of up to US$40 million.
Fixed Asset Additions
We continue to invest in our business with the majority of spend on
manufacturing and supporting our future sales growth. The majority of the
manufacturing spend relates to our new Vietnam site located adjacent to our
current facility. We plan to invest circa GBP10 million during the new financial
year, a GBP4 million increase on 2017. This acceleration is principally due to
the building of our new Vietnam site and an investment in upgrading our ERP
system.
Statement of Cash Flows
Our high margin business model, with modest capital requirements, continues to
produce excellent free cash flows.
We finished 2017 in a net debt position of GBP9.0 million compared with a net
cash position of GBP3.7 million at the end of 2016. This position was achieved
after funding the acquisition of Comdel (GBP18.2 million) and returning GBP14.0
million to Shareholders in the form of dividends. There was a working capital
outflow which is predominately made up of higher inventory which reflects a
high level of orders to be shipped in early 2018, offset by a movement in trade
and other payables of GBP5.3 million.
Dividends
The attractive cash flow generated by the XP Power business model has enabled
the Company to pursue a progressive dividend policy over a sustained period of
time.
The policy is to increase dividends progressively whilst maintaining an
appropriate level of cover. This year's financial performance in terms of both
profitability and cash flow has enabled us to recommend a final dividend of 29
pence per share which, together with the quarterly dividends already paid,
gives a total dividend for the year of 78 pence per share (2016: 71 pence per
share), an increase of 10%. Dividend cover for the year was 2.0 times.
Financial Instruments
The Group's financial instruments consist of cash, money market deposits, and
various other items such as trade receivables and trade payables that arise
directly from its business operations.
The Group uses forward currency contracts to hedge highly probable forecast
transactions. The instruments purchased are denominated in the currencies of
the Group's principal markets. The Group had GBP13.7 million of forward currency
contracts outstanding as at 31 December 2017 (2016: GBP11.5 million).
Brexit and Foreign Exchange
The weakening of Sterling versus the US Dollar in the period following the
United Kingdom Referendum on EU membership in June 2016 had a material effect
on the presentation of our financial results in both 2016 and 2017.
Approximately 82% (2016: 75%) of our revenues are denominated in US Dollars and
the translation of these revenues into Sterling for reporting purposes has had
a beneficial effect. However, the majority of our cost of sales and a large
proportion of our operating expenses are also denominated in US Dollars. While
a stronger US Dollar helps our overall gross margin in absolute terms (albeit
to a limited degree) it also has the effect of reducing the gross margin
percentage as costs rise disproportionately to the revenues. We estimate that
our reported 2017 gross margin percentage could be approximately 60bps (2016:
130bps) lower as a result.
In terms of the broader economic impacts of Brexit on our business, we do not
consider that they will be material. Our products are made in Asia and are
already imported into Europe where we have warehouses in both Germany and the
United Kingdom and hence we could ship our product destined for the European
Union directly into Germany or another appropriate location.
Systems Development
Efficient and robust systems are essential in order for us to manage an
international business and supply chain with a highly diverse customer base. We
operate a global Customer Relationship Management system covering all three
regions which allows us to collaborate, share information and provide efficient
and effective customer service. The cornerstone of our supply chain is built on
the SAP Enterprise Resource Management System. In 2018, we are embarking on a
project to implement the latest version of SAP across our entire global supply
chain with the first focus being on our China and Vietnam manufacturing
facilities. We expect this first stage to have significant benefits in terms of
factory planning and will of course give us significant operational advantages
with the factory systems running on the same platform as sales companies.
Further gains will be realised when we migrate the supply chain across.
This integrated approach ensures that we have the robust systems and reporting
necessary to support our future growth.
Outlook
We have started the new financial year well with continuing momentum in new
orders and revenue. We intend to invest further capital expenditure in our
business in key areas such as supply chain, manufacturing and systems to
support the anticipated growth of our business. We currently anticipate that
orders and revenue in 2018 will be above the level seen in 2017.
Gavin Griggs
Chief Financial Officer
XP Power Limited
Consolidated Statement of Comprehensive Income for the financial year ended 31
December 2017
GBP Millions Note 2017 2016
Revenue 2 166.8 129.8
Cost of sales (89.2) (67.8)
Gross profit 77.6 62.0
Expenses
Distribution and marketing (31.7) (26.6)
Administrative (4.6) (1.5)
Research and development (8.8) (5.9)
Operating profit 32.5 28.0
Finance charge (0.3) (0.2)
Profit before income tax 2 32.2 27.8
Income tax expense 3 (3.6) (6.3)
Profit after tax 28.6 21.5
Profit attributable to:
Equity holders of the Company 28.3 21.3
Non-controlling interests 0.3 0.2
28.6 21.5
Earnings per share attributable to equity holders of
the Company (pence per share)
- Basic 5 148.3 112.0
- Diluted 5 146.0 111.2
- Diluted adjusted 5 147.0 115.3
XP Power Limited
Consolidated Balance Sheet
As at 31 December 2017
GBP Millions Note 2017 2016
ASSETS
Current assets
Corporate tax recoverable 2.9 -
Cash and cash equivalents 15.0 9.2
Inventories 37.8 32.2
Trade receivables 23.8 21.5
Other current assets 3.8 2.4
Derivative financial instruments 0.2 0.4
Total current assets 83.5 65.7
Non-current assets
Goodwill 40.4 37.7
Intangible assets 23.5 15.3
Property, plant and equipment 22.5 19.1
Deferred income tax assets 1.4 0.4
ESOP loan to employees 0.3 0.7
Total non-current assets 88.1 73.2
Total assets 171.6 138.9
LIABILITIES
Current liabilities
Current income tax liabilities 3.5 3.3
Trade and other payables 21.4 16.1
Accrued consideration - 0.5
Borrowings 6 - 5.5
Derivative financial instruments 0.2 0.4
Total current liabilities 25.1 25.8
Non-current liabilities
Accrued consideration 1.4 1.5
Borrowings 6 24.0 -
Deferred income tax liabilities 4.2 4.7
Total non-current liabilities 29.6 6.2
Total liabilities 54.7 32.0
NET ASSETS 116.9 106.9
EQUITY
Equity attributable to equity holders of the Company
Share capital 27.2 27.2
Merger reserve 0.2 0.2
Treasury reserve 0.4 (0.5)
Hedging reserve (0.2) 0.3
Translation reserve (0.4) 3.5
Other reserve (0.8) -
Retained earnings 89.6 75.4
116.0 106.1
Non-controlling interests 0.9 0.8
TOTAL EQUITY 116.9 106.9
XP Power Limited
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2017
GBP Millions Note 2017 2016
Cash flows from operating activities
Profit after tax 28.6 21.5
Adjustments for
-Income tax expense 3.6 6.3
-Amortisation and depreciation 5.9 4.6
-Finance charge 0.3 0.2
-Equity award charges, net of tax 0.4 0.3
-Fair value (gain)/loss of derivative financial (0.5) 0.2
instruments
-Unrealised currency translation (gain)/loss (2.9) 5.0
Change in working capital, net of effects from
acquisitions:
-Inventories (2.5) (3.5)
-Trade and other receivables (1.6) (4.0)
-Trade and other payables 5.3 1.5
-Provision for liabilities and other charges (0.8) (0.1)
Cash generated from operations 35.8 32.0
Income tax paid (6.1) (4.1)
Net cash provided by operating activities 29.7 27.9
Cash flows from investing activities
Acquisition of a business, net of cash acquired (18.2) -
Purchases and construction of property, plant and (4.9) (2.6)
equipment
Capitalisation of research and development (5.2) (4.2)
expenditure
Proceeds from disposal of property, plant and 0.4 0.1
equipment
Repayment of ESOP loans 0.4 -
Payment of accrued consideration (0.5) -
Net cash used in investing activities (28.0) (6.7)
Cash flows from financing activities
Proceeds from borrowings 25.2 -
Repayment of borrowings (5.4) (3.7)
Sale of treasury shares 1.0 0.3
Purchase of treasury shares by ESOP (1.6) (0.1)
Interest paid (0.2) (0.2)
Dividend paid to equity holders of the Company (14.0) (12.9)
Dividend paid to non-controlling interests (0.2) (0.2)
Net cash provided by/(used in) financing activities 4.8 (16.8)
Net increase in cash and cash equivalents 6.5 4.4
Cash and cash equivalents at beginning of financial 9.2 4.3
year
Effects of currency translation on cash and cash (0.7) 0.5
equivalents
Cash and cash equivalents at end of financial year 15.0 9.2
Notes to the Annual Results Statement
For the year ended 31 December 2017
1. Basis of preparation
This financial information is presented in Pounds Sterling and has been
prepared using the accounting principles incorporated within International
Financial Reporting Standards (IFRS) as adopted by the European Union.
2. Segmental reporting
The Group is organised on a geographic basis. The Group's products are a single
class of business; however, the Group is also providing information in respect
of sales by end market to assist the readers of this report.
The geographical segmentation is as follows:
GBP Millions 2017 2016
Revenue
Europe 57.5 49.4
North America 94.4 68.6
Asia 14.9 11.8
Total Revenue 166.8 129.8
Segment result
Europe 14.6 11.6
North America 27.6 21.6
Asia 5.9 3.5
Segment result 48.1 36.7
Research and development (8.8) (5.9)
Finance charge (0.3) (0.2)
Corporate cost from operating segment (6.8) (2.8)
Profit before income tax 32.2 27.8
Income tax expense (3.6) (6.3)
Profit after tax 28.6 21.5
Analysis by end market
The revenue by end market was as follows:
Year to 31 December 2017 Year to 31 December 2016
North North
GBP Millions Europe America Asia Total Europe America Asia Total
Technology 7.7 39.2 3.3 50.2 7.1 21.4 3.6 32.1
Industrial 33.7 24.2 7.7 65.6 29.6 23.7 6.5 59.8
Healthcare 16.1 31.0 3.9 51.0 12.7 23.5 1.7 37.9
Total 57.5 94.4 14.9 166.8 49.4 68.6 11.8 129.8
Reconciliation of adjusted measures
Adjusted measures
The Group presents adjusted operating profit, adjusted EBITDA and adjusted
profit before tax by making adjustments for costs and profits which management
believes to be significant by virtue of their size, nature or incidence or
which have a distortive effect on current year earnings. Such items may
include, but are not limited to, costs associated with business combinations,
gains and losses on the disposal of businesses, fair value movements,
exceptional operating costs, and amortisation of intangible assets arising on
business combinations. Exceptional operating costs include reorganisation
costs, acquisition related charges and similar items of a significant and a
non-recurring nature.
The Group discloses adjusted EBITDA, being adjusted operating profit before
depreciation of property, plant and equipment and amortisation of intangible
assets. Adjusted EBITDA is broadly used by analysts, rating agencies, investors
and the Group's banks as part of their assessment of the Group's performance. A
reconciliation of adjusted EBITDA from operating profit is shown below.
In addition, the Group presents an adjusted profit after tax measure by making
adjustments for certain tax charges and credits which management believe to be
significant by virtue of their size, nature or incidence or which have a
distortive effect.
The Group uses these adjusted measures to evaluate performance and as a method
to provide shareholders with clear and consistent reporting. See below for a
reconciliation of profit before tax to adjusted profit before and after tax and
a reconciliation of operating profit to adjusted EBITDA and adjusted operating
profit.
(i) A reconciliation of operating profit to adjusted Earnings Before
Interest, Taxes, Depreciation and Amortisation ("EBITDA") is as follows:
GBP Millions 2017 2016
Operating Profit 32.5 28.0
Amortisation of intangible assets 3.1 2.4
Depreciation 2.8 2.2
EBITDA 38.4 32.6
Adjusted for:
Acquisition costs 3.3 0.4
Adjusted EBITDA 41.7 33.0
(ii) A reconciliation of operating profit to adjusted operating profit is
as follows:
GBP Millions 2017 2016
Operating Profit 32.5 28.0
Adjusted for:
Acquisition costs 3.3 0.4
Amortisation of intangible assets 0.6 0.4
3.9 0.8
Adjusted Operating Profit 36.4 28.8
(iii) A reconciliation of profit before income tax to adjusted profit before
tax is as follows:
GBP Millions 2017 2016
Profit before income tax ("PBT") 32.2 27.8
Adjusted for:
Acquisition costs 3.3 0.4
Amortisation of intangible assets 0.6 0.4
3.9 0.8
Adjusted PBT 36.1 28.6
(iv) A reconciliation of profit after tax to adjusted profit after tax is as
follows:
GBP Millions 2017 2016
Profit after tax ("PAT") 28.6 21.5
Adjusted for:
Acquisition costs 3.3 0.4
Amortisation of intangible assets 0.6 0.4
Non-recurring tax benefits1 (3.7) -
0.2 0.8
Adjusted PAT 28.8 22.3
1 Adjusted for tax on exceptional expense for both completed and aborted
acquisitions of GBP1.1 million (2016: nil), one-off tax adjustment of GBP1.3
million (2016:nil) and tax effect of change in US federal tax of GBP1.3 million
(2016: nil).
3. Income taxes
GBP Millions 2017 2016
Singapore corporation tax
- current year 3.1 2.6
- over-provision in prior financial year (1.5) (0.1)
Overseas corporation tax
- current year 2.6 3.5
- over-provision in prior financial year (0.4) (0.2)
Current income tax 3.8 5.8
Deferred income tax
- current year 1.1 0.6
- adjustment in respect of prior year - (0.1)
- change in tax rate (1.3) -
Income tax expense 3.6 6.3
The differences between the total income tax expense shown above and the amount
calculated by applying the standard rate of Singapore income tax rate to the
profit before income tax are as follows:
GBP Millions 2017 2016
Profit before tax 32.2 27.8
Tax on profit at standard Singapore tax rate of 17% 5.5 4.7
(2016: 17%)
Tax incentives (0.9) (0.4)
Higher rates of overseas corporation tax 2.0 2.4
Deduction for gain on employee share options 0.2 -
Adjustment in respect of prior year (1.9) (0.4)
Change in tax rate (1.3) -
Income tax expense 3.6 6.3
4. Dividends
Amounts recognised as distributions to equity holders in the period:
2017 2016
Pence per GBP Pence per GBP Millions
share Millions share
Prior year third quarter 16.0 * 3.0 15.0 2.8
dividend paid
Prior year final dividend 26.0 * 5.0 24.0 4.6
paid
First quarter dividend paid 15.0 ^ 2.9 14.0 * 2.6
Second quarter dividend 16.0 ^ 3.1 15.0 * 2.9
paid
Total 73.0 14.0 68.0
12.9
* Dividends in respect of 2016 (71.0p).
^ Dividends in respect of 2017 (78.0p).
The third quarter dividend of 18.0 pence per share was paid on 11 January 2018.
The proposed final dividend of 29.0 pence per share for the year ended 31
December 2017 is subject to approval by Shareholders at the Annual General
Meeting scheduled for 6 April 2018 and has not been included as a liability in
these financial statements. It is proposed that the final dividend be paid on
20 April 2018 to members on the register as at 16 March 2018.
5. Earnings per share
The calculations of the basic and diluted earnings per share attributable to
the ordinary equity holders of the Company are based on the following data:
GBP Millions 2017 2016
Earnings
Earnings for the purposes of basic and diluted 28.3 21.3
earnings per share (profit attributable to equity
holders of the Company)
Amortisation of intangibles associated with 0.6 0.4
acquisitions
Exceptional reorganisation 3.3 0.4
Tax on exceptional reorganisation (1.1) -
One off tax incentive (1.3) -
Tax effect of change in US federal tax rate (1.3) -
Adjusted Earnings for earnings per share 28.5 22.1
Number of shares
Weighted average number of shares for the purposes of
basic earnings per share (thousands) 19,082 19,015
Effect of potentially dilutive share options 306 147
(thousands)
Weighted average number of shares for the purposes of
dilutive earnings per share (thousands) 19,388 19,162
Earnings per share from operations
Basic 148.3p 112.0p
Diluted 146.0p 111.2p
Diluted adjusted 147.0p 115.3p
6. Borrowings
The borrowings are repayable as follows:
GBP Millions 2017 2016
On demand or within one year - 5.5
In the second year - -
In the third year - -
In the fourth year 24.0 -
Total 24.0 5.5
The other principal features of the Group's borrowings are as follows:
1. The Group had a term loan facility of US$12.0 million (GBP8.0 million) with
Bank of Scotland on 20 November 2015. The facility was repayable in equal
quarterly instalments of US$1.7 million which commenced in June 2016 and the
Group has repaid the balance of the term loan in September 2017. The term loan
was priced at LIBOR plus a margin of 0.95% (2016: priced at LIBOR plus a margin
of 0.95%).
2. The Group has entered into a new revolving credit facility of US$40.0
million with a US$20.0 million additional accordion option with HSBC and Fifth
Third Bank on 27 September 2017. The facility has no fixed repayment terms
until maturity. The revolving loan is priced at LIBOR plus a margin of 1% for
the utilisation facility and a margin of 0.4% for the unutilised facility.
3. Management assessed all loan covenants have been complied with as of 31
December 2017.
7. Accrued consideration
The Group owns 89.9% (2016: 84.0%) of the shares of Powersolve Electronics
Limited ("Powersolve") and entered into an amended agreement on 29 October 2016
to purchase the remaining 10.1% of the shares in 2022. The Group owns 51%
(2016: 51%) of the shares of Hanpower Co. Ltd ("Hanpower") and entered into an
agreement on 20 May 2015 to purchase an additional 15.0% of the shares in 2020
and another 15.0% of the shares in 2025.
The commitment to purchase the remaining ownership interests has been accounted
for as accrued consideration and is calculated based on the expected future
payment which will be based on a predefined multiple of the average earnings
for three years.
The future payment is discounted to the present value, with the discount
amortised to interest expense each period as the payment draws nearer. At each
reporting period, the anticipated future payment is recalculated and an
adjustment made accordingly, with a corresponding adjustment to goodwill for
Powersolve. For Hanpower, the amount that is payable under the agreement is
initially recognised at the present value of the redemption amount within
liabilities with a corresponding charge directly to equity. The liability is
subsequently accreted through finance charges up to the redemption amount that
is payable in 2020 and 2025. As a result of the purchase commitment and the
amount of control XP Power Limited exerts over both subsidiaries, their results
are fully consolidated in the Group. Dividends are attributed to the
non-controlling interests based on their respective interests in the
subsidiaries.
8. Principal risks and uncertainties
Board Responsibility
Like many other international businesses, the Group is exposed to a number of
risks which may have a material effect on its financial performance. The Board
has overall responsibility for the management of risk and sets aside time at
its meetings to identify and address risks.
Exposure to exchange rate fluctuations
The Group deals in many currencies for both its purchases and sales including
US Dollars, Euro and its reporting currency Pounds Sterling. In particular,
North America represents an important geographic market for the Group where
virtually all the revenues are denominated in US Dollars. The Group also
sources components in US Dollars and the Chinese Yuan. The Group therefore has
an exposure to foreign currency fluctuations. This could lead to material
adverse movements in reported earnings.
Risk mitigation - The Group reviews balance sheet and cash flow currency
exposures and where considered appropriate, uses forward exchange contracts to
hedge these exposures. Any forward contract requires the approval of both the
Chief Executive Officer and Chief Financial Officer.
The Group does not hedge any translation of its subsidiaries' results to
Sterling for reporting purposes.
Competition from new market entrants and new technologies
The power supply market is diverse and competitive. The Directors believe that
the development of new technologies could give rise to significant new
competition to the Group, which may have a material effect on its business. At
the lower end of the Group's target market, in terms of both power range and
programme size, the barriers to entry are lower and there is, therefore, a risk
that competition could quickly increase, particularly from emerging low cost
manufacturers in Asia.
Risk mitigation - The Group reviews activities of its competition, in
particular product releases, and stays up-to-date with new technological
advances in our industry, especially those relating to new components and
materials. The Group also tries to keep its cost base competitive by operating
in low cost geographies where appropriate.
The general direction of our product roadmap is to move away from lower
complexity products and to increase our engineering solutions capabilities so
reducing the inherent market competitiveness.
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 76% of revenues,
this would undoubtedly cause at least a short-term loss of revenues and profits
and disruption to our customers and therefore damage to reputation.
Risk mitigation - We now have two facilities (China and Vietnam) where we are
able to produce power supplies. However, not all power converter series can be
produced in both facilities.
We have disaster recovery plans in place for both facilities.
We have undertaken a risk review with the manufacturing management to identify
and assess risks which could cause a serious disruption to manufacturing, and
then identified and implemented actions to reduce or mitigate these risks where
possible.
Loss of key personnel or failure to attract new personnel
The future success of the Group is substantially dependent on the continued
services and continuing contributions of its Directors, senior management and
other key personnel. The loss of the services of key employees could have a
material adverse effect on own business.
Risk mitigation - The Group undertakes performance evaluations and reviews to
help it stay close to its key personnel as well as annual employee engagement
surveys. Where considered appropriate, the Group also makes use of financial
retention tools such as equity awards.
Dependence on of key customers/suppliers
The Group is dependent on retaining its key customers and suppliers. Should the
Group lose a number of its key customers or key suppliers, this could have a
material impact on the Group's financial condition and results of operations.
However, for the year ended 31 December 2017, no single customer accounted for
more than 11% of revenue.
Risk mitigation - The Group mitigates this risk by providing excellent service.
Customer complaints and non-conformances are reviewed monthly by members of the
Executive Leadership team.
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.
We conduct regular audits of our key suppliers and in addition keep large
amounts of safety inventory of key components.
Product recall
A product recall due to a quality or safety issue would have serious
repercussions to the business in terms of potential cost and reputational
damage as a supplier to critical systems.
Risk mitigation - We perform 100% functional testing on all own-manufactured
products and 100% hi-pot testing, which determines the adequacy of electrical
insulation, on own-manufactured products. This ensures the integrity of the
isolation barrier between the mains supply and the end user of the equipment.
We also test all the medical products we manufacture to ensure the leakage
current is within the medical specifications.
Where we have contracts with customers we always limit our contractual
liability regarding recall costs.
No single customer project accounts for more than 4% of overall revenue.
Fluctuations of revenues, expenses and operating results due an economic
downturn or external 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.
Risk mitigation - Although not immune from an economic shock or the cyclicality
of the capital equipment markets, the Group's diverse customer base, geographic
spread and revenue annuities reduces exposure to this risk.
The Group's business model is not capital intensive and the strong profit
margins lead to healthy cash generation which also helps mitigate risks from
these external factors.
The Group benefits from good order exposure 12 months out allowing it to
recognise market changes and mitigate the impact.
Cyber-security/Information systems failure
The Group is reliant on information technology in multiple aspects of the
business from communications to data storage. Assets accessible online are
potentially vulnerable to theft and customer channels are vulnerable to
disruption. Any failure or downtime of these systems or any data theft could
have a significant adverse impact on the Group's reputation or on the results
of operations.
Risk mitigation - The Group has a defined Business Impact Assessment which
identifies the key information assets; replication of data on different systems
or in the Cloud; an established backup process in place as well as a robust
anti-malware solution on our networks.
Internally produced training materials are used to educate users regarding good
IT security practice and to promote the Group's IT policy.
A cyber assessment carried out by the outsourced internal auditor resulted in
recommendations that are being implemented to further mitigate cyber risk and
safeguard the Group's assets.
Risks relating to regulation, compliance and taxation
The Group operates in multiple jurisdictions with applicable trade and tax
regulations that vary. Failing to comply with local regulations or a change in
legislation could impact the profits of the Group. In addition, the effective
tax rate of the Group is affected by where its profits fall geographically. The
Group's effective tax rate could therefore fluctuate over time and have an
impact on earnings and potentially its share price.
Risk mitigation - An outsourced internal audit function has been introduced to
provide risk assurance in targeted areas of the business and recommendations
for improvement. The scope of these reviews includes behaviour, culture and
ethics.
The Group hires employees with relevant skills and uses external advisers to
keep up-to-date with changes in regulations and to remain compliant.
Strategic risk associated with valuing or integrating new acquisitions
The Group may elect from time to time to make strategic acquisitions. A degree
of uncertainty exists in valuation and in particular in evaluating potential
synergies. Post-acquisition risks arise in the form of change of control and
integration challenges. Any of these could have an effect on the Group's
revenues, results of operations and financial condition.
Risk mitigation - Preparation of robust business plans and cash projections
with sensitivity analysis and the help of professional advisers if appropriate.
Post-acquisition reviews are performed to extract "lessons learned".
10. Responsibility Statement
The Directors confirm to the best of their knowledge and believe that this
condensed set of financial statements:
- Gives a fair view of the assets, liabilities, financial position and profit
of the Group; and
- Includes a fair review of the information required by the Disclosure and
Transparency Rules.
11. Other information
XP Power Limited (the "Company") is listed on the London Stock Exchange and
incorporated and domiciled in Singapore. The address of its registered office
is 401 Commonwealth Drive, Lobby B, #02-02, Haw Par Technocentre, Singapore
149598.
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2016 or 2017. The
financial information for the year ended 31 December 2016 is derived from the
XP Power Limited statutory accounts for the year ended 31 December 2016, which
have been delivered to the Accounting and Corporate Regulatory Authority in
Singapore. The auditors reported on those accounts; their report was
unqualified. The statutory accounts for the year ended 31 December 2017 will be
finalised on the basis of the financial information presented by the Directors
in this earnings announcement and will be delivered to the Accounting and
Corporate Regulatory Authority in Singapore following the Company's Annual
General Meeting.
Whilst the financial information included in this earnings announcement has
been computed in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union, this announcement does not itself
contain sufficient information to comply with IFRS as adopted by the European
Union. The Company expects to publish full financial statements that comply
with IFRS as adopted by the European Union later this month.
This announcement was approved by the Directors on 1 March 2018.
END
(END) Dow Jones Newswires
March 01, 2018 02:00 ET (07:00 GMT)
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