XP Power Ltd Final Results

 
TIDMXPP 
 
8 March 2017 
 
                               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                                       GBP133.5m      GBP110.5m            +21% 
 
Revenue                                            GBP129.8m      GBP109.7m            +18% 
 
Gross margin                                         47.8%        49.8%         -200bps 
 
Adjusted profit before tax1                         GBP28.6m       GBP25.7m            +11% 
 
Adjusted profit after tax and minority              GBP22.3m       GBP20.2m            +10% 
interest1 
 
Adjusted diluted earnings per share1                115.3p       104.3p            +11% 
 
Operating cash flow                                 GBP27.9m       GBP21.0m            +33% 
 
Net cash/(debt)                                      GBP3.7m      (GBP3.7)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                                   GBP27.8m       GBP25.4m            + 9% 
 
Profit after tax and minority interest              GBP21.5m       GBP19.9m            + 8% 
 
Diluted earnings per share                          111.2p       102.8p            + 8% 
 
1 Adjusted for one-off costs associated with acquisitions of GBP0.4 million 
(2015: GBP0.3 million) and intangibles amortisation of GBP0.4 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 GBP129.8 
    million (2015: GBP109.7 million) 
  * Revenues from XP Power's own-designed products increased by 28% (15% in 
    constant currency) to GBP95.3 million (2015: GBP74.6 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 GBP 
    30.2 million (2015: GBP23.6 million) 
  * Order intake of GBP133.5 million (2015: GBP110.5 million) - an increase of 21% 
    (9% in constant currency) 
  * Balance sheet remains robust, with net cash of GBP3.7 million at year end 
    (2015: net debt of GBP3.7 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                                         [phone] 
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 GBP129.8 million (2015: GBP109.7 million), an increase of 7% in constant 
currency. Order intake was GBP133.5 million (2015: GBP110.5 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 GBP27.8 million (2015: GBP25.4 million). After adding back 
costs associated with aborted acquisitions of GBP0.4 million (2015: GBP0.3 million) 
and amortisation of intangible assets of GBP0.4 million (2015: nil), adjusted 
profit before tax was GBP28.6 million (2015: GBP25.7 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 GBP30.2 million 
(2015: GBP23.6 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 GBP95.3 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 GBP49.4 million (2015: GBP45.1 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 GBP129.8 million (2015: GBP109.7 million). Order intake grew by 21% 
(9% in constant currency) to GBP133.5 million (2015: GBP110.5 million). Revenues 
from our own designed product - a key indicator of our strategic progress - 
grew by 28% (or approximately 15% in constant currency) to GBP95.3 million (2015: 
GBP74.6 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 GBP27.8 million (2015: GBP25.4 million). After adding back 
costs associated with aborted acquisitions of GBP0.4 million (2015: GBP0.3 million) 
adjusted profit before tax was GBP28.2 million, an increase of 10% over that 
reported in 2015. 
 
Taxation 
The tax charge for the year was GBP6.3 million (2015: GBP5.5 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 GBP0.4 million 
(acquisition costs in 2015: GBP0.3 million) and intangible assets amortisation of 
GBP0.4 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 GBP3.7 million compared with a net 
debt position of GBP3.7 million at the end of 2015. This position was achieved 
after returning GBP12.9 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 GBP11.5 million of forward currency 
contracts outstanding at 31 December 2016 (2015: GBP11.3 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 GBP37.1 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 
 
 GBP 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 
 
GBP 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 
 
GBP 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                 0.2      (0.2) 
financial instruments 
 
    -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                      -      (0.6) 
acquired 
 
Acquisition of a business, net cash of cash                        -      (7.7) 
acquired 
 
Purchases and construction of property, plant                  (2.6)      (2.5) 
and equipment 
 
Research and development expenditure capitalised               (4.2)      (2.9) 
 
Proceeds from disposal of property, plant and                    0.1          - 
equipment 
 
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                        (3.7)        8.0 
borrowings 
 
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                        4.3        1.3 
financial year 
 
Effects of currency translation on cash and cash                 0.5      (0.2) 
equivalents 
 
Cash and cash equivalents at end of financial                    9.2        4.3 
year 
 
 
 
 
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: 
 
GBP 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             (2.8)           8.7 
segment 
 
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 
 
GBP 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 
 
GBP 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            (0.1)         0.5 
year 
 
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: 
 
GBP Millions                                              2016        2015 
 
Profit before tax                                       27.8        25.4 
 
Tax on profit at standard Singapore tax rate             4.7         4.3 
of 17% 
 
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                 GBP Pence per             GBP 
                                   share          Millions     share      Millions 
 
Prior year third quarter            15.0  *            2.8      14.0           2.7 
dividend paid 
 
Prior year final dividend           24.0  *            4.6      22.0           4.2 
paid 
 
First quarter dividend              14.0  ^            2.6      13.0   *       2.4 
paid 
 
Second quarter dividend             15.0  ^            2.9      14.0   *       2.7 
paid 
 
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: 
 
GBP Millions                                              2016        2015 
 
Earnings 
 
Earnings for the purposes of basic and diluted          21.3        19.7 
earnings per share (profit for the year 
attributable to equity shareholers of the 
parent) 
 
Amortisation of intangibles associated with              0.4           - 
acquisitions 
 
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                  19,015      18,997 
(thousands) 
 
Effect of potentially dilutive share options             147         175 
(thousands) 
 
Weighted average number of shares for the 
purposes of dilutive earnings per share               19,162      19,172 
(thousands) 
 
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: 
 
GBP 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 
GBPNil million (2015: GBP0.6 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 (GBP8.0 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 GBP36.3 million. The 
restated goodwill as at 31 December 2015 is GBP35.9 million, reflecting an 
adjustment of (GBP0.4) million. 
 
The previously reported intangible assets as at 31 December 2015 is GBP11.9 
million. The restated intangible asset as at 31 December 2015 is GBP12.3 million, 
reflecting an adjustment of GBP0.4 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. 
 
 
 
END 
 

(END) Dow Jones Newswires

March 08, 2017 02:00 ET (07:00 GMT)