XP Power Limited
(“XP Power” or “the Group”)
Annual Results for
the year ended 31 December 2016
XP Power, one of the world's leading developers and
manufacturers of critical power control components for the
electronics industry, today announces its annual results for the
year ended 31 December 2016.
Highlights
|
|
|
|
Adjusted1 |
2016 |
2015 |
Change |
Order intake |
£133.5m |
£110.5m |
+21% |
Revenue |
£129.8m |
£109.7m |
+18% |
Gross margin |
47.8% |
49.8% |
-200bps |
Adjusted profit before
tax1 |
£28.6m |
£25.7m |
+11% |
Adjusted
profit after tax and minority interest1 |
£22.3m |
£20.2m |
+10% |
Adjusted diluted
earnings per share1 |
115.3p |
104.3p |
+11% |
Operating cash
flow |
£27.9m |
£21.0m |
+33% |
Net cash/(debt) |
£3.7m |
(£3.7)m |
N/A |
Final dividend per
share |
26.0p |
24.0p |
+8% |
Total dividend per
share |
71.0p |
66.0p |
+8% |
Reported |
|
|
|
Profit before tax |
£27.8m |
£25.4m |
+
9% |
Profit after tax and
minority interest |
£21.5m |
£19.9m |
+
8% |
Diluted earnings per
share |
111.2p |
102.8p |
+ 8% |
1 Adjusted for one-off costs associated with
acquisitions of £0.4 million (2015: £0.3 million) and intangibles
amortisation of £0.4 million (2015: nil)
- Record revenues and earnings achieved in 2016 despite
challenging economic conditions and political uncertainties
- Improvement in trading conditions during the second half of
2016, with positive momentum in order intake and revenues
- Full year revenues increased by 18% (7% in constant currency)
to £129.8 million (2015: £109.7 million)
- Revenues from XP Power’s own-designed products increased by 28%
(15% in constant currency) to £95.3 million (2015: £74.6 million)
to reach a record 73% of total revenue (2015: 68%)
- Sales of high efficiency XP “Green” Power products grew by 28%
in 2016 to £30.2 million (2015: £23.6 million)
- Order intake of £133.5 million (2015: £110.5 million) – an
increase of 21% (9% in constant currency)
- Balance sheet remains robust, with net cash of £3.7 million at
year end (2015: net debt of £3.7 million)
- Accelerated transfer of lower power/lower complexity product
from China manufacturing plant to Vietnam factory to enhance
competitiveness and free up capacity in China
- Power converter production at Vietnam facility increased by
119% to 377,700 units, strengthening the Group’s cost advantage
over many of its competitors
- Expect to break ground on construction of second manufacturing
facility at Vietnam site in Q4 2017
James Peters, Chairman, commented:
“We are encouraged by the strong finish we had to 2016.
The Group entered 2017 with a strong order backlog and, despite the
mixed global economic picture, we have established positive
momentum in the new financial year. The further utilisation of
lower cost production capacity in Vietnam is giving us a
competitive advantage and we will begin work on a second factory at
the site towards the end of 2017, to address our future volume
growth requirements.
In addition, the Group has a strong balance sheet and a highly
cash generative business that will enable us to help fund further
targeted acquisitions to broaden our product offering and
engineering capabilities.
We remain excited about the opportunities we believe will be
available to the Group in the years ahead.”
Enquiries:
XP
Power
Duncan Penny, Chief
Executive
+44 (0)7776 178018
Jonathan Rhodes, Finance Director
+44 (0)7500 944614
Citigate Dewe
Rogerson
Kevin Smith/Jos
Bieneman
+44 (0)20 7638 9571
XP Power designs and manufactures power controllers, the
essential hardware component in every piece of electrical equipment
that converts power from the electricity grid into the right form
for equipment to function.
XP Power typically designs power control solutions into the end
products of major blue-chip OEMs, with a focus on the industrial
(circa 50% of sales), healthcare (circa 30% sales) and technology
(circa 20% of sales) sectors. Once designed into a programme,
XP Power has a revenue annuity over the life cycle of the
customer’s product which is typically 5 to 7 years depending on the
industry sector.
XP Power has invested in research and development and its own
manufacturing facilities in China and Vietnam, to develop a range
of tailored products based on its own intellectual property that
provide its customers with significantly improved functionality and
efficiency.
Headquartered in Singapore and listed on the Main Market of the
London Stock Exchange since 2000, XP Power serves a global
blue-chip customer base from 27 locations in Europe, North America
and Asia.
For further information, please visit xppower.com
Chairman’s Statement
Our Progress in 2016
2016 was another year of significant progress; despite challenging
economic conditions and political uncertainties, we achieved record
revenues and earnings. In addition, we have enhanced our
manufacturing capability by reducing our lead times and introducing
lean manufacturing principles. We have also continued to ramp-up
power converter production in our Vietnam facility, giving us a
cost advantage over many of our competitors. Finally, we
strengthened our Board, and set the stage for the next phase of our
development.
Results
Our financial performance for the year was again strong.
Revenues were a record £129.8 million (2015: £109.7 million), an
increase of 7% in constant currency. Order intake was £133.5
million (2015: £110.5 million) representing an increase of 9% in
constant currency.
Gross margin showed a slight decline to 47.8% (2015: 49.8%) due
to product mix and the weakening of Sterling against the US Dollar
following the United Kingdom’s vote to leave the European Union,
reflecting the fact that the majority of our underlying product
costs are denominated in US Dollars.
Profit before tax was £27.8 million (2015: £25.4 million). After
adding back costs associated with aborted acquisitions of £0.4
million (2015: £0.3 million) and amortisation of intangible assets
of £0.4 million (2015: nil), adjusted profit before tax was £28.6
million (2015: £25.7 million), an increase of 11% over that
reported in 2015. Basic earnings per share increased 8% to
112.0 pence (2015:103.7 pence). Diluted adjusted earnings per share
increased 11% to 115.3 pence (2015:
104.3 pence).
Strategy Review
The Company’s strategy, which it has executed successfully over
many years, has generated good results. The Executive Management
team conducted a review of the strategy during 2016 with input and
review by the Board, to ensure it remained appropriate and
up-to-date. This review concluded that the essence of the strategy
– to continue to move up the value chain and win a growing
proportion of our customers’ available business – should be
unchanged but that a number of refinements be adopted to further
improve upon our success to date. In particular, we now
identify expansion of our product range by targeted acquisitions
and achieving operational excellence as additional specific
strategic goals. Further detail on our updated strategy is
provided in the Operating and Financial Review below.
Strengthening Our Board
We were pleased to welcome Polly Williams, who joined our Board
from 1 January 2016 as a
Non-Executive Director, bringing with her a wealth of public
company experience. Polly chairs XP Power’s Remuneration Committee
and is a member of the Audit Committee.
With this latest appointment, we consider that the Board now has
the appropriate experience and capabilities to take our Company to
the next level of its development.
Dividend
Our continued strong financial performance, strong cash flows and
confidence in the Group’s long term prospects have enabled us to
increase dividends consistently over a sustained period. In
line with our progressive dividend policy, the Board is
recommending a final dividend of 26
pence per share for the fourth quarter of 2016. This
dividend will be payable to members on the register on 17 March 2017 and will be paid on 21 April 2017.
When combined with the interim dividends for the previous
quarters, the total dividend for the year will be 71 pence per share (2015: 66 pence); an increase of 8%.
The compound average growth rate of our dividend has been 10%
over the last five years.
Our People and Our Values
The success of an organisation is dependent on the people and
talent within it. We have significant strength and depth within our
Company, with the majority of our Executives boasting long tenures
with XP Power. We have conducted annual employee engagement surveys
since 2015 and I am pleased that we have shown consecutive strong
and improving scores each time we repeat the survey having taken
actions to address any issues arising from the results of the prior
survey. One of the main findings from these employee surveys was
that our employees are proud to be part of our Company,
highlighting the significant engagement we have between the
business and our people. Our cultural survey score is one of our
non-financial key performance indicators.
During 2016, we rolled out a number of training programs built
around our core values of integrity, knowledge, flexibility, speed
and customer focus. These core values are part of our DNA and
have been responsible for driving our performance and customer
service commitment over the long term. Training programs were
delivered across the world and were extremely well-received.
Sustainability
Sustainability is extremely important to our people and our
customers. We punch well above our weight in this regard and set
ourselves the aspirational goal of leading our industry regarding
environmental and sustainability matters. This is reflected in the
work we have done to produce a portfolio of ultra-high efficiency
products which consume less energy, use less materials and do not
contain substances which are harmful to the environment. These XP
“Green” Power products grew at an impressive rate of 28% in
2016.
Our Vietnam factory is one of the most environmentally friendly
in the industry with an efficient building envelope,
ultra-efficient air conditioning, low-energy lighting, water
capture and recycling and solar panel array. This is not only
important to our customers but resonates with our employees.
Outlook
We are encouraged by the strong finish we had to 2016. The
Group entered 2017 with a strong order backlog and, despite the
mixed global economic picture, we have established positive
momentum in the new financial year.
In addition, the Group has a strong balance sheet and a robust
business that provides excellent cash generation to help fund
targeted acquisitions that will broaden our product offering and
engineering capabilities.
James Peters
Chairman
Operating and Financial Review
Review of our year
While, overall, the market for industrial electronics remained
challenging in 2016, trading conditions improved during the second
half and we had some positive momentum in order intake and
revenues. We continued to make progress with the execution of our
strategy and reported record revenues, as well as delivering our
highest ever level of own designed/own manufactured product
revenues which now represent 73% of the total.
We also undertook a review of our well-established strategy
during the year, to ensure it remains appropriate and up-to-date.
The results of this review are discussed in more detail
below.
We have been actively transferring more of the lower power/lower
complexity product from our China facility to our Vietnam facility
to maintain cost competitiveness and to free up capacity in China.
We have also implemented a number of lean manufacturing principles
which have allowed us to reduce lead times. We would also expect to
see cost benefits from these initiatives as we trade through
2017.
We remain excited about the future prospects for our
business.
Strategic progress
During 2016, the Executive Management team critically reviewed the
strategy we have been successfully executing and which has produced
good results over a sustained period. The review concluded that the
fundamental essence of the strategy - targeting key accounts where
we can add value and gaining more of the available business in
those accounts - remains appropriate and effective. However, a
number of refinements were made to the strategy, including a
greater emphasis on acquisitions to further expand our product
offering and making the pursuit of operational excellence a
specific strategic goal.
Our refined strategy can be summarised as follows:
- Develop a broad range of competitive products;
- Target accounts where we can add value;
- Increase vertical penetration of target accounts;
- Enhance brand awareness;
- Achieve operational excellence;
- Lead our industry on environmental matters; and
- Selective acquisitions of complementary businesses to expand
our product offering.
We continue to make significant progress against each of these
objectives. We believe we have the broadest, most up-to-date
portfolio of products, many of which are class leading in terms of
efficiency and low stand-by power. Our portfolio of XP “Green”
Power products grew by 28% in 2016 to £30.2 million (2015: £23.6
million) demonstrating how well these products have been adopted by
our customers. We also continue to see revenues from our own
designed/manufactured products grow at a faster rate than those
from other products.
We consider that our transition from a sales distribution
company, through the addition of a design capability, to designer
and manufacturer is now complete. We are now clearly recognised as
both a designer and manufacturer by key customers in the
industrial, healthcare and technology markets. Revenues from our
own-designed products set a new record of £95.3 million in the
year, representing 73% of revenue (2015: 68%). We expect further
growth in this area in 2017.
As we gain preferred or approved supplier status with our
blue-chip customers we are gaining exposure to new opportunities in
additional product areas. Our broad range of products, excellent
customer service, low cost Asian manufacturing capability and
engineering support on three continents makes us an ideal strategic
partner to these larger blue-chip customers. We have established
this position with our standard product offering but now we see
attractive opportunities in these larger customers to engage on
custom designs. We have already deployed more of our engineering
services resource into these areas but also see opportunities for
further acquisitions where our customer relationships and supplier
approvals at key customers can be combined with acquired custom
engineering expertise.
As we look forward, we see further opportunities to capitalise
on our customer relationships and large direct sales channel by
further expanding our product offering. Our acquisition of EMCO in
November 2015 was an excellent
example of this initiative and we have been actively seeking
further opportunities to expand our product capability into
complementary areas in which we do not currently operate or where
we are under-represented.
Productivity will be a key area of future focus. We deliver
excellent customer service and operating margins demonstrating that
we have an efficient and effective business model. As our
organisation grows geographically and in complexity we will ensure
that we retain and build on the core values of knowledge,
flexibility and speed that have served us well to date. In
particular, we have continued to upgrade our systems and have
brought new talent with experience in complex operations and lean
process techniques into the organisation. We will be placing
greater emphasis on operational excellence in 2017 to further
enhance our productivity.
Marketplace
All industry sectors and all geographies experienced revenue growth
in 2016 over 2015 and, significantly, sequential growth in the
second half of 2016 over the first half. We therefore entered 2017
with good momentum and a healthy order book.
North America revenues in 2016 were $93.7
million but they did benefit from incremental revenues from
the acquisition of EMCO in November
2015. Without the benefit of the EMCO revenues, North
America revenues would have been flat year-on-year. However, order
intake in North America was strong in the second half of 2016 -
with $51.6 million booked compared
with $47.0 million in the first half.
North America now has the benefit of good momentum going into 2017,
with some promising new programs where we expect volumes to ramp-up
significantly during the year.
Technology represented 31% of revenues in North America in 2016
compared to 30% in 2015. The industrial sector rebounded and
represented 35% of revenues in 2016 compared to 31% in 2015.
Healthcare also performed well in North America in absolute terms,
with revenues ahead by 10% as a number of new programs ramped-up,
but its share of revenues declined to 34% (2015: 39%) as it did not
match the pace of the recovery we saw in the industrial sector.
Our Asia business continued to grow despite the widely reported
slow-down in China. Asia revenues grew 18% in 2016 to $16.1 million (2015: $13.7
million). The customers driving this increase generally sell
their end products outside of the emerging markets. Industrial and
technology sectors showed good growth in Asia whilst healthcare
remained flat year-on-year.
Our European business grew by 10% to £49.4 million (2015: £45.1
million) which is the third successive year of growth in
challenging market conditions. The industrial, healthcare and
technology sectors all saw growth in Europe and we gained increased
traction with some of the bigger blue-chip clients, which we
expect to drive further European growth in 2017.
The geographic split of reported revenue was broadly maintained
year-on-year. Overall North America represented 53% of revenue
(2015: 51%), Asia represented 9% of revenue (2015: 8%) and Europe
represented 38% of revenue (2015: 41%). The average exchange rate
for the US Dollar compared to Sterling was 1.38 in 2016 versus 1.54
in 2015 representing a 10% weakening of Sterling following the
Brexit vote. This caused North America and Asia revenues to be
inflated, due to translation, and all of our costs reported in
Sterling to be inflated as our product costs are predominately
denominated in US Dollars. We discuss the potential impact of the
Brexit vote and foreign exchange volatility in more detail
below.
The overall picture by sector reflects the narrative above.
Industrial represented 46% of revenue (2015: 44%), healthcare
represented 29% of revenue (2015: 31%) and technology represented
25% of revenue (2015: 25%). All our products are designed into
capital equipment so our revenues will always be affected by
capital equipment cycles, however, our exposure to a large number
of end markets helps mitigate the cyclicality in any particular
sector, producing an underlying resilience in our diversified
business model.
We continue to perform well against our traditional established
competition. Our broad range of standard products and excellent
customer service delivered by the largest direct sales force in our
industry is a compelling proposition. We expect future competitors
to emerge from Asia as companies with low cost manufacturing and
engineering attempt to enter parts of the industrial and healthcare
markets in Europe and North America. We need to ensure we continue
to drive down our manufacturing costs and maintain our reputation
as the experts in power to mitigate this threat.
Research and Development
We have continued to invest in research and development to further
expand our portfolio of products and the size of our addressable
market opportunity. We increased our design engineering resource
and capabilities during 2016 in both our North America and United
Kingdom design centres, including the introduction of a firmware
capability for which we are seeing increasing demand. We released
47 new product families in 2016 (2015: 22) and 33 of these can be
classified as ultra-high efficiency.
The high level of new product introductions was driven by the
addition of a new third party supplier to enhance our DC-DC product
offering.
Manufacturing
The addition of a manufacturing site in Vietnam in 2012 added much
needed capacity and also enhanced our cost competitiveness as
production costs in Vietnam are significantly lower than those of
our existing Chinese facility.
Production volumes of magnetics windings at our Vietnam facility
have continued to ramp-up and in 2016 we produced 4.9 million
windings compared to 4.3 million in 2015. We have been actively
transferring the lower power/lower complexity products from China
to Vietnam in 2016 to improve our cost position and free up
capacity in China. In 2016 we manufactured 377,700 power supplies
in our Vietnam facility compared to 172,500 in 2015.
We continue to make process improvements in our manufacturing
facilities, where we are applying more lean process principles. Our
internal yields continue to improve and we have redesigned some of
our processes to reduce product lead times to provide improved
customer service and reduced freight costs. We expect to derive
cost benefits from our lean manufacturing initiatives as we trade
through 2017.
Our longer term planning indicates we will need additional
manufacturing capacity in the first half of 2019. We have therefore
allocated US$1.5 million of our
capital budget in Q4 of 2017 to break ground on a second factory at
the Vietnam site, as envisaged at the time of our original
investment.
Enhancing our digital presence
In December 2015 we launched our
completely revamped website at xppower.com. The new
mobile-optimised site was specifically designed to improve
interaction and the overall user experience and has been
well-received by customers.
Distribution
In the first quarter of 2014, we signed a distribution agreement
with global electronic components distributor Digi-key, to
complement our existing distribution partnership with Premier
Farnell, incorporating Farnell in Europe, element14 in Asia and
Newark in America. In the summer of 2016, we engaged with another
global electronic components distributor, Electrocomponents plc,
incorporating trading brands RS Components in Europe & Asia,
and Allied Electronics in America. With this appointment, we now
have a presence with three leading global high service level/online
distribution channels, making our product more readily available to
a larger number of small and medium-sized customers and enhancing
our brand recognition. We are experiencing excellent growth through
these channels, allowing our direct sales teams to concentrate on
our larger blue-chip accounts.
Systems Development
Efficient and robust systems are essential in order for us to
manage an international business with a highly diverse customer
base. In 2014 we upgraded our Customer Relationship Management
systems across all three regions. This has allowed us to
collaborate and share information much more effectively and provide
even better customer service. From the beginning of January 2015 we replaced our North America
business systems with SAP and are now running the same Enterprise
Resource Management System across all three geographies which
further enhances the speed and capability of our internal
reporting.
This integrated approach ensures that we have the robust systems
and reporting necessary to support our future growth.
Revenue and order intake
Revenues set a new record and grew 18% over the prior year (7% in
constant currency) to £129.8 million (2015: £109.7 million). Order
intake grew by 21% (9% in constant currency) to £133.5 million
(2015: £110.5 million). Revenues from our own designed product – a
key indicator of our strategic progress – grew by 28% (or
approximately 15% in constant currency) to £95.3 million (2015:
£74.6 million) representing 73% of revenue (2015: 68%) and setting
another new record.
Margins
Gross margin declined slightly to 47.8% (2015: 49.8%), largely due
to product mix and the effect of the depreciation of Sterling
versus the US Dollar. The majority of our product costs are
denominated in US Dollars so while the weakening of Sterling helps
our revenue line, product costs increase more than the revenues as
a result of the weakness of Sterling. Operating margins declined
from 23.3% in 2015 to 21.6%. This was partly due to the weakness of
Sterling but also due to the operating margins of EMCO being lower
than those of XP Power as a whole.
Profit before tax was £27.8 million (2015: £25.4 million). After
adding back costs associated with aborted acquisitions of £0.4
million (2015: £0.3 million) adjusted profit before tax was £28.2
million, an increase of 10% over that reported in 2015.
Taxation
The tax charge for the year was £6.3 million (2015: £5.5 million)
which represents an effective tax rate of 22.7% (2015: 21.7%). The
effective rate is primarily determined by how our profits are
distributed geographically. We expect a slight increase in the
effective tax rate again in 2017.
Earnings per share
Basic earnings per share increased 8% to 112.0 pence compared to 103.7 pence in 2015. Diluted earnings per share
increased by 8% to 111.2 pence
compared with 102.8 pence in
2015.
After adding back costs associated with aborted acquisitions of
£0.4 million (acquisition costs in 2015: £0.3 million) and
intangible assets amortisation of £0.4 million (2015: nil) adjusted
diluted earnings per share was 115.3
pence (2015: 104.3 pence) an
increase of 11%.
Cash flow, funding and net cash
Our high margin business model, with modest capital requirements,
continues to produce excellent free cash flows.
We finished 2016 in a net cash position of £3.7 million compared
with a net debt position of £3.7 million at the end of 2015. This
position was achieved after returning £12.9 million to Shareholders
in the form of dividends.
In order to finance the acquisition of EMCO in November 2015 the Group took out a US$12.0 million term debt facility with Bank of
Scotland PLC. The facility is repayable in equal quarterly
instalments of US$1.7 million
commenced in June 2016 and ending in
December 2017. The facility is priced
at LIBOR plus a margin of 0.95%.
In September 2016 the Group
renewed its annual working capital facility at a level of
US$7.5 million (2015: US$ 12.5 million). The facility is priced at the
Bank of England base rate plus a margin of 1.5%. Bank of Scotland
PLC provides the facility.
At 31 December 2016, no working
capital facility was drawn down.
Dividends
The attractive cash flow aspect of our business model has enabled
us to pursue a progressive dividend policy over a sustained period
of time.
Our policy is to increase dividends progressively whilst
maintaining an appropriate level of cover. This year’s financial
performance in terms of both profitability and cash flow has
enabled us to recommend a final dividend of 26 pence per share which together with the
quarterly dividends already paid gives a total dividend for the
year of 71 pence per share (2015:
66 pence per share) an increase of
8%. Dividend cover for the year was 1.6 times.
Derivatives
The Group’s financial instruments consist of cash, money market
deposits, overdrafts, and various other items such as trade
receivables and trade payables that arise directly from its
business operations.
The Group uses forward currency contracts to hedge highly
probable forecast transactions. The instruments purchased are
denominated in the currencies of the Group’s principal markets. The
Group had £11.5 million of forward currency contracts outstanding
at 31 December 2016 (2015: £11.3
million).
Brexit
The weakening of Sterling versus the US Dollar in the period
following the United Kingdom Referendum on EU membership on
23 June 2016 has obviously had a
material effect on the presentation of our financial results in
2016.
Approximately 75% of our revenues are denominated in US Dollars
and the translation of these revenues into Sterling for reporting
purposes has had a beneficial effect. However, the majority of our
cost of sales and a large proportion of our operating expenses are
also denominated in US Dollars. While a stronger US Dollar helps
our overall gross margin in absolute terms (albeit to a limited
degree) it also has the effect of reducing the gross margin
percentage as costs rise disproportionately to the revenues. We
estimate that our reported 2016 gross margin percentage could be
approximately 130 basis points lower as a result.
For our United Kingdom business invoiced in Sterling, which
represents approximately 13% of our worldwide revenues, margins
were reduced in the second half of 2016 as the associated product
cost is denominated in US Dollars. We have therefore been raising
prices as customers place new orders to compensate for this effect.
Although no customer is ever happy with a price increase, our
reasons for doing so are well understood. We therefore expect to
recover a significant portion of our margin losses in the United
Kingdom in 2017.
In terms of the broader economic impacts of Brexit on our
business, we do not consider that they will be material. The
evidence to date is that some of our United Kingdom customers are
benefiting from the weakening of Sterling as they are frequently
net exporters.
Our products are made in Asia and are already imported into
Europe where we have warehouses in both Germany and the United
Kingdom and hence we could ship our product destined for the
European Union directly into Germany or another appropriate
location.
Outlook for 2017
Although there continue to be a number of economic and political
uncertainties which could potentially affect our business in 2017,
we consider that we are well positioned in our marketplace. We have
good momentum as our design pipeline continues to grow. Our order
intake in the fourth quarter of 2016 was strong at £37.1 million
and we entered 2017 with a healthy order book.
We also continue to work to identify acquisition opportunities
that would be complementary to our product portfolio.
We remain excited and confident regarding the long term
prospects for our Group.
Duncan
Penny
Jonathan Rhodes
Chief Executive
Finance Director
XP Power Limited
Consolidated Statement of Comprehensive Income for the
Financial year ended 31 December
2016
|
£ Millions |
Note |
2016 |
2015 |
|
|
|
|
Revenue |
2 |
129.8 |
109.7 |
|
|
|
|
Cost of sales |
|
(67.8) |
(55.1) |
|
|
|
|
Gross profit |
|
62.0 |
54.6 |
|
|
|
|
|
|
|
|
Expenses |
|
|
|
Distribution and marketing |
|
(26.6) |
(22.0) |
Administrative |
|
(1.5) |
(1.2) |
Research and development |
|
(5.9) |
(5.8) |
|
|
|
|
Operating profit |
|
28.0 |
25.6 |
|
|
|
|
Finance charge |
|
(0.2) |
(0.2) |
|
|
|
|
Profit before income tax |
2 |
27.8 |
25.4 |
Income tax expense |
3 |
(6.3) |
(5.5) |
|
|
|
|
Profit for the year |
|
21.5 |
19.9 |
|
|
|
|
Profit attributable to: |
|
|
|
Equity holders of the Company |
|
21.3 |
19.7 |
Non-controlling interests |
|
0.2 |
0.2 |
|
|
21.5 |
19.9 |
|
|
|
|
Earnings per share attributable to
equity holders of the Company (pence per share) |
|
|
|
- Basic |
5 |
112.0 |
103.7 |
- Diluted |
5 |
111.2 |
102.8 |
- Diluted adjusted |
5 |
115.3 |
104.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XP Power Limited
Consolidated Balance Sheet
As at 31 December 2016
£ Millions |
Note |
2016 |
2015 |
|
|
|
(restated) |
ASSETS |
|
|
|
Current
assets |
|
|
|
Cash and cash
equivalents |
|
9.2 |
4.9 |
Inventories |
|
32.2 |
28.7 |
Trade and other
receivables |
|
21.5 |
17.5 |
Other current
assets |
|
2.4 |
2.4 |
Derivative financial
instruments |
|
0.4 |
- |
|
|
|
|
Total current
assets |
|
65.7 |
53.5 |
|
|
|
|
Non-current
assets |
|
|
|
Goodwill |
|
37.7 |
35.9 |
Intangible assets |
|
15.3 |
12.3 |
Property, plant and
equipment |
|
19.1 |
16.1 |
Deferred income tax
assets |
|
0.4 |
0.4 |
ESOP loan to
employees |
|
0.7 |
0.7 |
|
|
|
|
Total non-current
assets |
|
73.2 |
65.4 |
|
|
|
|
Total
assets |
|
138.9 |
118.9 |
|
|
|
|
LIABILITIES |
|
|
|
Current
liabilities |
|
|
|
Current income tax
liabilities |
|
3.3 |
1.2 |
Trade and other
payables |
|
16.1 |
14.6 |
Provision for deferred
contingent consideration |
|
0.5 |
- |
Borrowings |
6 |
5.5 |
4.0 |
Derivative financial
instruments |
|
0.4 |
- |
|
|
|
|
Total current
liabilities |
|
25.8 |
19.8 |
|
|
|
|
Non-current
liabilities |
|
|
|
Provision for deferred
contingent consideration |
|
1.5 |
1.5 |
Borrowings |
6 |
- |
4.6 |
Deferred income tax
liabilities |
|
4.7 |
3.9 |
|
|
|
|
Total non-current
liabilities |
|
6.2 |
10.0 |
|
|
|
|
Total
liabilities |
|
32.0 |
29.8 |
|
|
|
|
NET ASSETS |
|
106.9 |
89.1 |
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
Share capital |
|
27.2 |
27.2 |
Merger reserve |
|
0.2 |
0.2 |
Treasury reserve |
|
(0.5) |
(1.0) |
Hedging reserve |
|
0.3 |
0.1 |
Translation
reserve |
|
3.5 |
(5.3) |
Retained earnings |
|
75.4 |
67.1 |
|
|
106.1 |
88.3 |
Non-controlling
interests |
|
0.8 |
0.8 |
|
|
|
|
TOTAL
EQUITY |
|
106.9 |
89.1 |
XP Power Limited
Consolidated Statement of Cash Flows
For the financial year ended 31 December
2016
£ Millions |
Note |
2016 |
2015 |
|
|
|
|
Cash flows from
operating activities |
|
|
|
Profit for the
year |
|
21.5 |
19.9 |
Adjustments for |
|
|
|
-Income tax expense |
|
6.3 |
5.5 |
-Amortisation and depreciation |
|
4.6 |
3.8 |
-Finance charge |
|
0.2 |
0.2 |
-ESOP expenses |
|
0.3 |
0.1 |
-Loss/(gain) on fair valuation of derivative financial
instruments |
|
0.2 |
(0.2) |
-Unrealised currency translation loss |
|
5.0 |
1.0 |
|
|
|
|
Change in working
capital, net of effects from acquisitions: |
|
|
|
-Inventories |
|
(3.5) |
(2.8) |
-Trade and other receivables |
|
(4.0) |
(1.5) |
-Trade and other payables |
|
1.5 |
(0.2) |
-Provision for liabilities and other charges |
|
(0.1) |
(0.1) |
Cash generated from
operations |
|
32.0 |
25.7 |
Income tax paid |
|
(4.1) |
(4.7) |
Net cash generated
from operating activities |
|
27.9 |
21.0 |
|
|
|
|
Cash flows from
investing activities |
|
|
|
Acquisition of a
subsidiary, net cash of cash acquired |
|
- |
(0.6) |
Acquisition of a
business, net cash of cash acquired |
|
- |
(7.7) |
Purchases and
construction of property, plant and equipment |
|
(2.6) |
(2.5) |
Research and
development expenditure capitalised |
|
(4.2) |
(2.9) |
Proceeds from disposal
of property, plant and equipment |
|
0.1 |
- |
ESOP loans repaid |
|
- |
0.2 |
Net cash used in
investing activities |
|
(6.7) |
(13.5) |
|
|
|
|
Cash flows from
financing activities |
|
|
|
(Repayment of
borrowings)/proceeds from borrowings |
|
(3.7) |
8.0 |
Sale of treasury
shares |
|
0.3 |
0.3 |
Purchase of treasury
shares by ESOP |
|
(0.1) |
(0.3) |
Interest paid |
|
(0.2) |
(0.1) |
Dividend paid to
equity holders of the Company |
|
(12.9) |
(12.0) |
Dividend paid to
non-controlling interests |
|
(0.2) |
(0.2) |
Net cash used in
financing activities |
|
(16.8) |
(4.3) |
|
|
|
|
Net increase in
cash and cash equivalents |
|
4.4 |
3.2 |
Cash and cash
equivalents at beginning of financial year |
|
4.3 |
1.3 |
Effects of currency
translation on cash and cash equivalents |
|
0.5 |
(0.2) |
|
|
|
|
Cash and cash
equivalents at end of financial year |
|
9.2 |
4.3 |
|
|
|
|
Notes to the Annual Results Statement
For the year ended 31 December 2016
1. Basis
of preparation
This financial information is presented in Pounds Sterling and
has been prepared using the accounting principles incorporated
within International Financial Reporting Standards (IFRS) as
adopted by the European Union.
2.
Segmental reporting
The Group is organised on a geographic basis. The Group's
products are a single class of business; however the Group is also
providing information in respect of sales by end market to assist
the readers of this report.
The geographical segmentation is as follows:
£
Millions |
|
2016 |
2015 |
|
|
|
|
Revenue |
|
|
|
Europe |
|
49.4 |
45.1 |
North
America |
|
68.6 |
55.7 |
Asia |
|
11.8 |
8.9 |
Total
Revenue |
|
129.8 |
109.7 |
|
|
|
|
Segment result |
|
|
|
Europe |
|
11.6 |
6.7 |
North
America |
|
21.6 |
14.6 |
Asia |
|
3.5 |
1.4 |
Segment result |
|
36.7 |
22.7 |
Research
and development |
|
(5.9) |
(5.8) |
Finance
charge |
|
(0.2) |
(0.2) |
Corporate
(cost)/recovery from operating segment |
|
(2.8) |
8.7 |
Profit
before income tax |
|
27.8 |
25.4 |
Income
tax expense |
|
(6.3) |
(5.5) |
Profit
for the year |
|
21.5 |
19.9 |
Analysis by end market
The revenue by end market was as follows:
|
Year to 31 December 2016 |
Year to 31 December 2015 |
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
North |
|
|
£ Millions |
Europe |
America |
Asia |
Total |
Europe |
America |
Asia |
Total |
|
|
|
|
|
|
|
|
|
Technology |
7.1 |
21.4 |
3.6 |
32.1 |
6.7 |
16.8 |
3.3 |
26.8 |
Industrial |
29.6 |
23.7 |
6.5 |
59.8 |
27.1 |
17.6 |
3.9 |
48.6 |
Healthcare |
12.7 |
23.5 |
1.7 |
37.9 |
11.3 |
21.3 |
1.7 |
34.3 |
Total |
49.4 |
68.6 |
11.8 |
129.8 |
45.1 |
55.7 |
8.9 |
109.7 |
3. Income taxes
£ Millions |
2016 |
2015 |
Singapore corporation
tax |
|
|
- current year |
2.6 |
1.6 |
- over-provision in prior financial
year |
(0.1) |
- |
|
|
|
Overseas corporation
tax |
|
|
- current year |
3.5 |
2.8 |
- over-provision in prior financial
year |
(0.2) |
(0.2) |
Current income tax |
5.8 |
4.2 |
|
|
|
Deferred income tax |
|
|
- current year |
0.6 |
0.8 |
- (over)/under-provision in prior
financial year |
(0.1) |
0.5 |
Income tax expense |
6.3 |
5.5 |
The differences between the total income tax expense shown above
and the amount calculated by applying the standard rate of
Singapore income tax rate to the profit before income tax are as
follows:
£ Millions |
2016 |
2015 |
|
|
|
Profit before
tax |
27.8 |
25.4 |
|
|
|
Tax on profit at
standard Singapore tax rate of 17% |
4.7 |
4.3 |
Tax incentives |
(0.4) |
(0.7) |
Higher rates of
overseas corporation tax |
2.4 |
1.7 |
Deduction for loss on
employee share options |
- |
(0.1) |
Adjustment in respect
of prior year |
(0.4) |
0.3 |
|
|
|
Income tax
expense |
6.3 |
5.5 |
4. Dividends
Amounts recognised as distributions to equity holders in the
period:
|
|
|
|
2016 |
2015 |
|
|
Pence per share |
|
|
|
£
Millions |
Pence per
share |
|
£
Millions |
|
|
|
|
|
|
|
|
|
|
Prior year third
quarter dividend paid |
|
15.0 |
* |
|
|
2.8 |
14.0 |
|
2.7 |
Prior year final
dividend paid |
|
24.0 |
* |
|
|
4.6 |
22.0 |
|
4.2 |
First quarter dividend
paid |
|
14.0 |
^ |
|
|
2.6 |
13.0 |
* |
2.4 |
Second quarter
dividend paid |
|
15.0 |
^ |
|
|
2.9 |
14.0 |
* |
2.7 |
Total |
|
68.0 |
|
|
|
12.9 |
63.0 |
|
12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
* Dividends in respect of 2015 (66.0p)
^ Dividends in respect of 2016 (71.0p)
The third quarter dividend of 16.0
pence per share was paid on 12
January 2017. The proposed final dividend of 26.0 pence per share for the year ended
31 December 2016 is subject to
approval by Shareholders at the Annual General Meeting scheduled
for 19 April 2017 and has not been
included as a liability in these financial statements. It is
proposed that the final dividend be paid on 21 April 2017 to members on the register as at
17 March 2017.
5. Earnings per
share
The calculations of the basic and diluted earnings per share
attributable to the ordinary equity holders of the Company are
based on the following data:
£ Millions |
2016 |
2015 |
Earnings |
|
|
|
|
|
Earnings for the
purposes of basic and diluted earnings per share (profit for the
year attributable to equity shareholers of the parent) |
21.3 |
19.7 |
Amortisation of
intangibles associated with acquisitions |
0.4 |
- |
Exceptional
reorganisation |
0.4 |
0.3 |
Adjusted Earnings
for earnings per share |
22.1 |
19.7 |
|
|
|
Number of
shares |
|
|
Weighted average number
of shares for the purposes of basic earnings per share
(thousands) |
19,015 |
18,997 |
|
|
|
Effect of potentially
dilutive share options (thousands) |
147 |
175 |
Weighted average number
of shares for the purposes of dilutive earnings per share
(thousands) |
19,162 |
19,172 |
|
|
|
Earnings per share
from operations |
|
|
Basic |
112.0p |
103.7p |
Diluted |
111.2p |
102.8p |
Diluted
adjusted |
115.3p |
104.3p |
6. Borrowings
The borrowings are repayable as follows:
£ Millions |
2016 |
2015 |
|
|
|
On demand or within one
year |
5.5 |
4.0 |
In the second year |
- |
4.6 |
Total |
5.5 |
8.6 |
The other principal features of the Group's borrowings are as
follows:
1. Bank overdrafts are repayable on
demand. The bank overdrafts are secured on the assets of the Group.
At 31 December 2016, the Group had an
overdraft of £Nil million (2015: £0.6 million). In December 2016, the Group renewed its annual
working capital facility to US$7.5
million (2015: US$12.5
million). The facility is priced at the Bank of England base
rate plus a margin of 1.5%. Bank of Scotland PLC (BOS) provides the
facility.
2. The Group has a term loan facility of
US$12.0 million (£8.0 million) with
BOS with quarterly repayments of US$1.7
million commenced in June 2016
and ending in December 2017.
The term loan is priced at LIBOR plus a margin of 0.95% (2015:
priced at LIBOR plus a margin of 0.95%).
3. The Group has pledged all assets as collateral to
secure banking facilities granted to the Group by BOS.
4. Management assessed all loan covenants have been
complied with as of 31 December
2016.
7. Deferred
consideration
The Group owns 84.0% (2015: 84.0%) of the shares of Powersolve
Electronics Limited (“Powersolve”) and had entered into an amended
agreement on 29 October 2016 to
purchase the remaining 16.0% of the shares in 2017 and 2022. The
Group will acquire 5.9% of Powersolve’s shares in early 2017 and
the remaining 10.1% in early 2022. The Group owns 51% (2015: 51%)
of the shares of Hanpower Co. Ltd (“Hanpower”) and had entered into
an agreement on 20 May 2015 to
purchase additional 15.0% of the shares in 2020 and another 15.0%
of the shares in 2025.
The commitment to purchase the additional ownership has been
accounted for as deferred consideration and is calculated based on
the expected future payment which will be based on a predefined
multiple of the earnings for 3 years.
8. Prior
year comparatives
In accordance with IFRS 3 Business Combinations, the management
has assessed the fair value of the identified intangible assets.
Accordingly, goodwill recognised last year has now been adjusted to
reflect the revised fair value of the intangible assets.
The previously reported goodwill as at 31
December 2015 is £36.3 million. The restated goodwill as at
31 December 2015 is £35.9 million,
reflecting an adjustment of (£0.4) million.
The previously reported intangible assets as at 31 December 2015 is £11.9 million. The restated
intangible asset as at 31 December
2015 is £12.3 million, reflecting an adjustment of £0.4
million in customer relationship.
9. Principal
risks and uncertainties
Board Responsibility
Like many other international businesses the Group is exposed to a
number of risks which may have a material effect on its financial
performance. The Board has overall responsibility for the
management of risk and sets aside time at its meetings to identify
and address risks.
Exposure to exchange rate fluctuations
The Group deals in many currencies for both its purchases and sales
including US Dollars, Euro and its reporting currency Pounds
Sterling. In particular, North America represents an important
geographic market for the Group where virtually all the revenues
are denominated in US Dollars. The Group also sources components in
US Dollars and the Chinese Yuan. The Group therefore has an
exposure to foreign currency fluctuations. This could lead to
material adverse movements in reported earnings.
Risk mitigation – The Group reviews balance sheet and cash flow
currency exposures and where considered appropriate uses forward
exchange contracts to hedge these exposures. Any forward contract
requires the approval of both the Chief Executive and Finance
Director.
Competition from new market entrants and new
technologies
The power supply market is diverse and competitive. The Directors
believe that the development of new technologies could give rise to
significant new competition to the Group, which may have a material
effect on its business. At the lower end of the Group’s target
market, in terms of both power range and program size, the barriers
to entry are low and there is, therefore, a risk that competition
could quickly increase particularly from emerging low cost
manufacturers in Asia.
Risk mitigation – The Group reviews activities of its
competition, in particular product releases, and stays up-to-date
with new technological advances in our industry especially those
relating to new components and materials. The Group also tries to
keep its cost base competitive by operating in low cost geographies
where appropriate.
Disruption of one of our manufacturing facilities
An event that results in the temporary or permanent loss of a
manufacturing facility would be a serious issue. As the Group
manufactures 73% of revenues this would undoubtedly cause at least
a short term loss of revenues and profits and disruption to our
customers and therefore damage to reputation.
Risk mitigation – We now have two facilities (China and Vietnam)
where we are able to produce power supplies. However, currently
only certain series can be produced in both facilities.
We have disaster recovery plans in place for both
facilities.
We have also undertaken a risk review to the manufacturing
management to identify and assess risks which could cause a serious
disruption to manufacturing and then identified and implemented
actions to reduce or mitigate these risks where possible.
Dependence on key personnel
The future success of the Group is substantially dependent on the
continued services and continuing contributions of its Directors,
Senior Management and other key personnel. The loss of the services
of any of their respective Executive Officers or other key
employees could have a material adverse effect on their
businesses.
Risk mitigation – The Group undertakes performance evaluations
and reviews to help it stay close to its key personnel. Where
considered appropriate the Group also makes use of financial
retention tools such as equity awards.
Loss 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 a
key supplier this could have a material impact on the Group’s
business financial condition and results of operations. However,
for the year ended 31 December 2016,
no one customer accounted for more than 7% 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 Management team. On
the supply side 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, that 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.
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 our 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, the introduction of
new products or services by the Group, or by our 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 downturn
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.
Information Technology Systems
The business of the Group relies to a significant extent on
information technology systems used in the daily operations of its
operating subsidiaries. Any failure or impairment of those systems
or any inability to transfer data onto any new systems introduced
could cause a loss of business and/or damage to the reputation of
the Group together with significant remedial costs. The Group is
also potentially exposed to cyber-attacks of its internal systems
or website or software viruses in general which could have an
adverse impact on the business
Risk mitigation – The Group has disaster recovery plans in place
to help deal with disruption including information technology
issues.
The Group’s key data is replicated on different sites and backed
up or is held in the cloud. The Group has firewall and other data
security infrastructure to protect ourselves from outside threats.
It also operates policies to prevent employees using unauthorised
software inside the Company’s premises which could introduce a
virus or malware into the Group’s internal systems.
Risks relating to regulation 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 – The Group hires employees with relevant skills
and uses external advisors to keep up-to-date with changes in
regulations and to remain compliant.
The Group also employs a treasurer who keeps our taxation
position under continual review.
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 2015 or 2016. The
financial information for the year ended 31
December 2015 is derived from the XP Power Limited statutory
accounts for the year ended 31 December
2015, 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
2016 will be finalised on the basis of the financial
information presented by the Directors in this preliminary
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 preliminary
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 8 March 2017.