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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| XP Power Ltd | AQSE:XPP.GB | Aquis Stock Exchange | Ordinary Share | SG9999003735 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -50.00 | -3.51% | 1,375.00 | 1,300.00 | 1,450.00 | 1,425.00 | 1,375.00 | 1,425.00 | 118 | 15:32:24 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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1 August 2019
XP Power Limited
("XP Power" or "the Group" or the "Company")
Interim Results for the six months ended 30 June 2019
XP Power, one of the world's leading developers and manufacturers of critical
power control solutions for the electronics industry, today announces its
interim results for the six-month period ended 30 June 2019.
Six months ended Six months
ended
30 June 2019 30 June 2018
(Unaudited) (Unaudited) Change
Highlights
Order intake GBP100.6m GBP101.4m -1%
Revenue GBP98.9m GBP93.2m +6%
Turnover
Gross margin 44.6% 46.7% -210bps
Interim dividend per share 35.0p 33.0p +6%
Adjusted
Adjusted operating profit1 GBP18.2m GBP20.7m -12%
Adjusted profit before income tax1 GBP16.6m GBP20.3m -18%
Adjusted diluted earnings per 69.2p 83.7p -17%
share2
Reported
Cash generated from operations GBP25.2m GBP15.8m +59%
Net debt GBP50.4m GBP52.0m3 N/A
Profit before tax GBP12.9m GBP18.5m -30%
Profit attributable to equity GBP10.3m GBP14.6m -29%
holders
Diluted earnings per share 52.8p 74.9p -30%
1Adjusted for completed acquisition costs of GBP0.4 million (1H 2018: GBP0.4
million), intangibles amortisation of GBP1.6 million (excluding amortisation for
development costs) (1H 2018: GBP1.0 million), changes in accounting policy of GBP
Nil (1H 2018: GBP0.4 million), legal costs of GBP1.2 million (1H 2018: GBPNil) and
ERP implementation costs GBP0.5 million (1H 2018: GBPNil)
2Adjusted for completed acquisition costs of GBP0.4 million (1H 2018: GBP0.4
million), intangibles amortisation of GBP1.6 million (excluding amortisation for
development costs) (1H 2018: GBP1.0 million), changes in accounting policy of GBP
Nil (1H 2018: GBP0.4 million), legal costs of GBP1.2 million (1H 2018: GBPNil), ERP
implementation costs GBP0.5 million (1H 2018: GBPNil) and non-recurring tax
benefits of GBP0.5 million (1H 2018: GBP0.1 million)
3Balance as at 31 December 2018
· Robust revenue growth in the Healthcare sector up 8%, Industrial sector
up 13%, and Technology sector up 12%, offset by weakness in the Semiconductor
Manufacturing Equipment sector down 34%.
· Order intake decreased by 1% to GBP100.6 million (7% decrease in constant
currency).
· Revenue increased by 6% to GBP98.9 million (flat at constant currency).
· Own-design XP product revenues increased 6% on a reported basis to a
record GBP77.3 million (1H 2018: GBP72.6 million), and represent 78% of total
revenues (1H 2018: 78%).
· Gross margin reduced to 44.6% (1H 2018: 46.7%) due to the impact of
Section 301 trade tariffs imposed by the USA on goods imported from China,
adverse product and geographic mix, and the impact of component price inflation
incurred in 2018 when supplies of critical electronic components tightened.
· Expansion of the Vietnamese manufacturing facility, which was completed
in Q1 2019, enables the Group to provide its USA customers with products that
are not subject to the 25% Section 301 tariffs. The Group has transferred
manufacturing of over 1,500 different products from China to Vietnam in the
past year.
· Restructuring of low power, high voltage DC-DC manufacturing through
transfer of operations from Nevada to Vietnam, resulting in annual savings of
circa GBP4.0 million from June 2020.
· A portion of the savings from the restructuring will be reinvested in
expanding our new product introduction team to facilitate the transfer of
further production volumes from the USA to Vietnam, resulting in further
savings over the medium term.
· Cash generated from operations up 59% to GBP25.2 million (1H 2018: GBP15.8
million) as a result of improved working capital management.
· Dividend for the first half of 2019 increased by 6% to 35.0 pence per
share (1H 2018: 33.0 pence per share), reflecting the confidence the Board has
in the Group's longer term prospects.
James Peters, Chairman, commented:
"Our results for the first half reflect tougher trading conditions in the
second quarter. While growth in our Healthcare, Industrial and Technology
markets remained robust, this was offset by a cyclical slowdown in the
Semiconductor Equipment Manufacturing market and pressure on gross margins,
resulting from the increase in USA trade tariffs on Chinese manufactured goods,
historic component price inflation and product mix.
Notwithstanding these current headwinds, we continue to win new design slots at
our key customers and to take market share. We benefit from a broad customer
base as demonstrated by the resilience of our Industrial, Healthcare and
Technology sector performance. We are well positioned to take further share and
will benefit from any recovery in the Semiconductor Equipment Manufacturing
sector. While we remain mindful of potential short-term risks and macroeconomic
challenges, we continue to expect an improved revenue performance in the second
half of the year as a result of the increase in our order book since the year
end. With a proven strategy, strong design win momentum and an expanded
product portfolio, the Board remains positive regarding the future of the
Group."
Enquiries:
XP
Power
Duncan Penny, Chief Executive
Officer +44 (0)118 984
5515
Gavin Griggs, Chief Financial
Officer +44 (0)118
984 5515
Citigate Dewe
Rogerson
Kevin Smith/Jos
Bieneman
+44 (0)20 7638 9571
Note to editors
XP Power designs and manufactures power controllers, the essential hardware
component in every piece of electrical equipment that converts power from the
electricity grid into the right form for equipment to function.
XP Power typically designs power control solutions into the end products of
major blue-chip OEMs, with a focus on the Industrial (circa 48% of sales),
Healthcare (circa 24% of sales), Semiconductor Equipment Manufacturing (circa
17% of sales) and Technology (circa 11% 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 29
locations in Europe, North America and Asia.
For further information, please visit xppower.com.
1 August 2019
XP Power Limited
("XP", "XP Power" or "the Group")
Interim Results for the six months ended 30 June 2019
INTERIM STATEMENT
Overview
The Group made a good start to 2019 with encouraging order intake in the first
quarter but the second quarter of the year has proved to be more challenging.
While we have continued to see robust growth in our Healthcare, Industrial and
Technology revenues, there has been a further slowdown in the Semiconductor
Equipment Manufacturing sector due to the weaker market for memory. This has
affected a number of our larger customers who are working through inventory as
they await a recovery in market conditions, which is not expected before 2020.
Furthermore, the imposition of Section 301 tariffs by the USA on products we
supply from China into the USA, which were increased from 10% to 25% in May
2019, and the retaliatory tariffs China has placed on USA manufactured products
has caused downward pressure on our gross margins in the first half. The
strong performance we have delivered in the Healthcare, Industrial and
Technology sectors has not been enough to compensate for the detrimental effect
of these two factors.
Our decision to establish manufacturing capability in Vietnam in 2012 and the
subsequent capacity expansion which was completed in the first quarter of 2019
have proved to be extremely timely. Our Vietnam manufacturing plant allows us
to offer our USA customers products which are not subject to the 25% Section
301 tariff imposed by the Trump administration on power converters manufactured
in China. The majority of our competition have a predominantly Chinese
manufacturing footprint. We have transferred the production of over 1,500
different products from China to Vietnam in the last 12 months. We are also
announcing plans to transfer the manufacture of all our low power, high voltage
DC-DC converters to Vietnam by mid-2020, which we expect will lead to
significant cost savings.
Notwithstanding these headwinds, we are continuing to win new design slots with
our key customers and take market share. The acquisitions of Comdel in Radio
Frequency ("RF") power and Glassman High Voltage in high power, high voltage
have significantly expanded our addressable market. They are providing a
springboard for future growth in our existing customer base as our sales teams
find interesting new applications for these products.
Our Strategy and Value Proposition
We remain committed to our strategy and continue to invest for the medium and
longer term. We continued to execute well against our strategy in the period,
gaining further design wins from our newer product introductions and our
increased focus on engineering solutions which provide more value to our
customers. The successful implementation of our strategy continues to drive
market share gains and the strength of our new programme wins is encouraging.
The Group has applied a consistent strategy of moving up the value chain and
our growth derives in part from the targeting of key customers. Once we are
approved to supply these larger customers, we have a strong track record of
successfully gaining a larger share of their available business. We also
continue to expand the breadth of our product portfolio, both organically and
by acquisition, in what remains a highly fragmented sector, therefore enabling
us to increase our addressable market. Since the end of 2015, we have
completed three acquisitions which have allowed us to expand into the high
voltage and RF power market sectors increasing our addressable market by circa
US$2.0 billion (75%).
Our acquisition of the Glassman High Voltage business in May 2018 opened up the
circa US$500 million high power, high voltage market to the Group. The
combination of the XP Power sales force with the engineering and manufacturing
capability at Glassman is compelling, and we are finding good opportunities for
this product line. We now have an enviable product portfolio of over 300
product families from low voltage to 500 kilo Volts at power levels up to 200
kilo Watts. This breadth of range combined with our excellent customer support
and Engineering Services capabilities makes us the ideal choice of power
solutions provider to our target customers.
Our value proposition to customers is to reduce their overall costs of design,
manufacture and operation and get their product to market as quickly as
possible. We achieve this by providing excellent sales engineering support and
producing new highly reliable products that are easy to design into the
customer's system, consume less power, take up less space and reduce
installation times.
Our vision is to be the first-choice power solutions provider, delivering the
ultimate experience for our customers and as a place of work for our people.
XP Power supplies power control solutions to Original Equipment Manufacturers
("OEMs") who supply the Healthcare, Industrial, Semiconductor Equipment
Manufacturing and Technology markets with high value, high reliability
products. The increasing importance of energy efficiency for environmental,
reliability and economic reasons; increasing demand for digital connectivity of
power conversion products; the necessity for ever smaller products; the
accelerating rate of technological change; and the increasing proliferation of
electronic equipment and semiconductor devices, have established a strong
foundation for growth in demand for XP Power's products.
Trading and Financial Review
On a statutory basis, revenue was GBP98.9 million (1H 2018: GBP
93.2 million), representing growth of 6%. Operating profit was GBP14.5 million
(1H 2018: GBP18.9 million), a decrease of 23% against the prior year, with
operating margin at 14.7% (1H 2018: 20.3%). Net finance costs were GBP
1.6 million (1H 2018: GBP0.4 million), resulting in profit before tax of GBP
12.9 million (1H 2018: GBP18.5 million). Income tax expense was GBP2.5 million (1H
2018: GBP3.8 million), equivalent to an effective tax rate of 19.4% (1H 2018:
20.5%). Basic earnings per share were 53.8 pence (1H 2018: 76.4 pence), a
decrease of 30%.
Adjusted Results
Throughout this Interim Results statement, adjusted and other alternative
performance measures are used to describe the Group's performance. These are
not recognised under International Financial Reporting Standards ("IFRS") or
other Generally Accepted Accounting Principles ("GAAP").
When reviewing XP Power's performance, the Board and management team focus in
particular on adjusted results rather than statutory results. There are a
number of items included in our statutory results which are considered by the
Board to be one-off in nature or not representative of the Group's performance
and are thus excluded from adjusted results. The tables in note 5 show the
full list of adjustments between statutory operating profit and adjusted
operating profit by business, as well as between statutory profit before tax
and adjusted profit before tax at Group level for both 2019 and 2018.
Order Intake
Order intake of GBP100.6 million (1H 2018: GBP101.4 million) was down 1% on a
reported basis. Given that the majority of orders are placed in US Dollars,
the reported results reflect the impact of the weaker Sterling:US Dollar
exchange rate of 1.29 in 2019, compared to 1.39 in the prior year. When
adjusted to constant currency, 2019 orders were down 7% compared with the prior
year. In constant currency, compared to the same period a year ago, Asia
orders increased by 11%, Europe orders increased by 1%, while North America
orders decreased by 12% (19% organic). The majority of our Semiconductor
Equipment Manufacturing customers are in North America, and the downturn in
this sector is the key driver of the decline in orders in North America.
Order intake in the first half of 2019 exceeded revenues with a resultant
book-to-bill ratio of 1.02 (1H 2018: 1.09). We enter the second half of the
current year with an order book of GBP86.1 million (December 2018: GBP81.5
million).
Revenue Performance
Reported revenues grew by 6% to GBP98.9 million in the six months to 30 June 2019
compared to GBP93.2 million in the same period a year ago. When adjusting to
constant currency, 2019 revenues were flat compared to 2018.
Revenues in North America were US$72.9 million (1H 2018: US$79.0 million), down
8% compared to the same period a year ago. Excluding revenues from Glassman
High Voltage which was acquired in May 2018 of US$7.6 million (1H 2018: US$1.4
million), organic revenues declined by 16%, reflecting the weak performance of
the Semiconductor Equipment Manufacturing sector. Revenues in Europe were GBP
32.9 million (1H 2018: GBP29.7 million), up 11% on the same period a year ago
(approximately half the European revenues are denominated in US Dollars). Our
business in Europe is very diverse but heavily weighted towards the Industrial
sector which has held up well. While difficult to quantify, there is anecdotal
evidence of some customers reporting inventory build up to buffer potential
adverse effects arising from a disorderly Brexit. Revenues in Asia were
US$12.3 million (1H 2018: US$9.0 million), up a healthy 36% compared with the
same period a year ago driven by a Technology sector programme coming back to
life and strong performance from RF programmes.
On a sector basis, revenues from Healthcare customers grew by 8% to US$30.2
million (1H 2018: US$28.0 million). Revenues from Industrial customers
increased by 13% to US$60.9 million (1H 2018: US$54.1 million). Revenues from
Technology customers grew 12% to US$13.9 million (1H 2018: US$12.4 million).
In contrast to the robust growth in the Healthcare, Industrial and Technology
sectors, revenues from Semiconductor Equipment Manufacturing customers declined
significantly by 34% to US$22.7 million (1H 2018: US$34.6 million) as a result
of weakness in the market for memory. We are not expecting any recovery in the
Semiconductor Equipment Manufacturing market before 2020. The acquired
Glassman High Voltage business contributed US$5.3 million (1H 2018: US$1.0
million) to Semiconductor Equipment Manufacturing revenues in 1H 2019, giving
an organic decline in revenue of 48% in this sector compared to organic growth
of 68% in 2018. Notwithstanding the decline in the Semiconductor Equipment
Manufacturing sector, we regard this sector as having highly attractive growth
prospects which are being driven by the growth of Big Data, Augmented
Intelligence and the Internet of Things.
XP Power's expansion of its capabilities into higher voltage, higher power and
RF power has made us an attractive power solutions provider to the many
Healthcare and Semiconductor Equipment Manufacturers who use these types of
products and value our engineering solutions capability.
In terms of overall revenue for the first half of 2019, Industrial represented
48% (1H 2018: 42%), Technology represented 11% (1H 2018: 10%), Healthcare
represented 24% (1H 2018: 22%) and Semiconductor Equipment Manufacturing
represented 17% (1H 2018: 26%).
Our customer base remains highly diversified with the largest customer
accounting for only 9% of revenue (1H 2018: 16%), spread over 180 different
programmes/part numbers.
Gross Margin
Gross margin in the first half of 2019 was 44.6% (1H 2018: 46.7%), a 210 bps
decline on a reported basis and 150 bps in constant currency. The 150 bps
decline in gross margin in constant currency resulted from a combination of the
higher component costs incurred in 2018 now being reflected within our cost of
sales, adverse geographic and product mix, and the impact of Section 301
tariffs which we have not been able to fully recover from customers. Whilst we
expect the Section 301 tariffs to be resolved in the short to medium term, we
are continuing to work with customers on tariff recovery and mitigation, and
expect our gross margin to benefit from this in the second half of 2019 as a
result.
Adjusted Operating Expenses and Margins
Adjusted operating expenses in the first half were GBP25.9 million (1H 2018: GBP
23.2 million reported and GBP23.9 million in constant currency) after adjusting
for GBP1.6 million of intangibles amortisation (1H 2018: GBP1.0 million), GBP0.4
million of acquisition related costs (1H 2018: GBP0.4 million), GBP0.5 million of
Enterprise Resource Planning ("ERP") system implementation costs (1H 2018: GBP
Nil) and GBP1.2 million of legal costs (1H 2018: GBPNil). The legal costs relate
to an ongoing legal dispute in North America. The dispute is non-customer
related and is currently in mediation.
The principal increase in operating expenses was in Product Development. We
are engaging in ever more sophisticated and complex programmes with many of our
key customers. These customers value XP Power's engineering solutions and
power conversion expertise to solve their power-related challenges and get
their products to market more quickly. Systems are becoming more complex and
there is increasing demand for power conversion solutions that communicate with
both the customers' applications and with the outside world as the concept of
an Internet of Things promulgates. This area of the market allows us to add
more value to our customers' engineering teams and is less crowded with low
cost Asian competition. As such, we continue to reinvest part of the cash
returns generated from our growth to fund further expansion of our engineering
capabilities, particularly our engineering solutions groups in Asia, Europe and
North America.
Gross product development spend was GBP8.9 million (1H 2018: GBP6.6 million), GBP4.4
million of which was capitalised (1H 2018: GBP2.8 million), and GBP1.8 million
amortised (1H 2018: GBP1.4 million). We will continue to invest in engineering
resources to drive future revenue growth.
We have also continued to invest in additional customer support and engineering
resources as we remain committed to the future growth of the business.
The reduction in gross margin combined with the increase in expenses resulted
in a lower adjusted operating margin of 18.4% (1H 2018: 22.2%).
Finance Cost
Net finance cost increased to GBP1.6 million (1H 2018: GBP0.4 million) due to
increased average borrowings following the acquisition of Glassman High Voltage
in May 2018 and the requirement to build additional inventory in the second
half of 2018 as a result of significant increases in component lead times. Our
raw material inventory in Asia has started to reduce toward more normal levels
although the longer lead times remain for some of our components. The Group
also recognised an interest expense of GBP0.1 million (1H 2018: GBPNil) in relation
to leases due to the adoption of IFRS 16 from 1 January 2019.
Interest cover (EBITDA as a multiple of net interest expense as defined by our
Revolving Credit Facility) was 18.8 times (1H 2018: 74.6 times) which is well
in excess of the minimum required in our banking covenants.
Adjusted Profit before Tax
The Group generated adjusted profit before tax of GBP16.6 million (1H 2018: GBP20.3
million), down 18% year-on-year despite the growth in revenue due to a gross
margin dilution of 210bps and an increase of 170bps investment in operating
costs and the increased finance charge.
Specific Items
Specific items are excluded from management's assessment of profit because they
distort the Group's underlying earnings either due to their size or nature. In
the first half of 2019, the Group incurred GBP3.7 million (1H 2018: GBP1.8 million)
of specific items, which consisted amortisation of intangible assts due to
business combinations of GBP1.6 million (1H 2018: GBP1.0 million), GBP1.2 million of
legal costs (1H 2018: GBPNil), GBP0.5 million of ERP system implementation costs
(1H 2018: GBPNil) and GBP0.4 million of acquisition related costs (1H 2018: GBP0.4
million).
Taxation
The tax charge for the period was GBP2.5 million (1H 2018: GBP3.8 million),
representing an effective tax rate of 19.4% (1H 2018: 20.5%). After adjusting
for specific items, the effective tax rate for the period was 18.1% (1H 2018:
18.7%).
We currently expect our future effective tax rate to be in the range of 17% to
19% depending on the geographic distribution of our future profits.
Operating Cash Flows and Net Debt
The Group generated net cash from operations of GBP25.2 million, up 59% from the
GBP15.8 million generated in the previous year. The higher level of operating
cash flows was largely due to better working capital management, with net
working capital inflows of GBP4.6 million compared to outflows of GBP8.4 million in
2018, with inventory levels reducing from the higher levels seen in 2018. We
expect a further unwinding of working capital in the second half of 2019.
Net debt was GBP50.4 million at 30 June 2019, compared with GBP52.0 million at 31
December 2018. The Group continued its progressive dividend policy which
resulted in returning GBP10.2 million (1H 2018: GBP9.2 million) to shareholders in
the form of dividends.
Product Development
New products are fundamental to our revenue growth. The broader our product
offering, the higher the probability that we will have a product which will
work in the customer's application, with or without a modification by our
engineering team. By expanding into high voltage and RF power, we have
increased our addressable market from around US$3.0 billion to approximately
US$4.7 billion.
The design-in cycles required by our customers to qualify the power converter
in their equipment and to gain the necessary safety agency approvals are
lengthy. Typically we see a period of around 18 months, or even longer in
healthcare, from first identifying a customer opportunity to receiving the
first production order. Revenue will then start to build from this point,
often peaking a number of years later. The positive aspect of this
characteristic is that our business has a strong annuity base where programmes
typically last seven to eight years. Another aspect of this model is that the
many new products we have introduced over the last three years have yet to make
a meaningful impact on our revenue, creating a significant benefit for future
years.
XP Power launched 9 new product families in the first half of 2019 (1H 2018:
12). We continue to lead our industry in the introduction of high efficiency,
"green" products, with all of the new product families released in the first
half of 2019 having high efficiency and/or low stand-by power.
Following the acquisition of Glassman High Voltage in May 2018, we released our
first high power, high voltage product family. The EY Series is a range of
high voltage, rack mount, laboratory type power supplies that can also be used
in Original Equipment Manufacturer ("OEM") applications. Delivering up to
1,200 Watts of power, there are models covering output voltages from 1 kilo
Volts to 60 kilo Volts.
We have also demonstrated our continued move up the power level in low voltage
with the release of a new family of 5 kilo Watt products. In addition, we
brought our offering of medical external power supplies up to date with new
product families at 150 and 200 Watts, together with the introduction of
low-cost next generation 40 and 60 Watt open frame products.
With larger customers continuing to reduce the number of vendors they deal
with, XP Power's broad product offering, excellent global engineering support,
in-house manufacturing capability and industry-leading environmental
credentials leave the Group well-placed to secure further preferred supplier
agreements. The addition of RF power and high voltage, high power products to
our range via the acquisitions of Comdel and Glassman further enhances this
proposition. Combining this with our Engineering Services offering makes us a
compelling partner to our larger customers who come to us to provide leading
edge power solutions to power their complex applications.
Manufacturing Progress
XP Power's move into manufacturing in 2006 has been instrumental in enabling
the Group to win approved and preferred supplier status with new Blue-Chip
customers who value suppliers that have complete control over their
manufacturing and supply chain to ensure the highest levels of quality and
agility.
To supplement our original Chinese manufacturing facility in Kunshan near
Shanghai, our Vietnamese manufacturing facility, located in Ho Chi Minh City,
began production of its first magnetic components in 2012. Since the fourth
quarter of 2014, our Vietnamese facility has been producing complete power
converters of the same standard as our Chinese facility.
We completed the construction of a second factory on our existing site in
Vietnam in the first quarter of 2019, and this is expected to add US$130
million of manufacturing capacity per year. This will increase our total
manufacturing capacity in Asia from US$170 million to US$300 million per year.
The move into Vietnam and the recently completed capacity expansion have proved
particularly timely given the deterioration in trade relations between China
and the USA and the imposition of Section 301 tariffs at a rate of 10% from
September 2018 and 25% since 10 May 2019. The majority of our competitors have
Chinese based manufacturing facilities which puts them at a significant
commercial disadvantage if they are selling into the USA. The ability to
manufacture in Vietnam has become a compelling value proposition to our USA
customers. Realising this advantage in full will take time as some customers
will need to approve the transfer of production from our Chinese facility to
our Vietnamese facility. Kunshan will continue to focus on the higher power,
higher complexity products and products destined for the Chinese market.
Since the summer of 2018, we have been working to ensure all products less than
1.5 kilo Watts can be manufactured in both China and Vietnam to provide supply
flexibility and business continuity. This process is now complete. Vietnam is
now qualified to produce a total of 1,819 different products (1H 2018: 282),
demonstrating the effect and resources that have gone into the transfer of
production. XP Power manufactured 779,800 (1H 2018: 716,900) power converters
in total during the first half of 2019, and 619,600 (1H 2018: 504,800) of these
were produced in Vietnam. We expect to be able to win more design slots with
our key customers in the coming months due to this important strategic
capability. Our Vietnamese facility would continue to enjoy a cost advantage
over competitors with a predominantly Chinese manufacturing footprint, even in
the event that the Trump administration decides to levy Section 301 tariffs on
power converters produced in Vietnam.
Having the capability to produce the majority of our products in both China and
Vietnam also significantly helps with business continuity planning.
Restructuring of Low Power, High Voltage Manufacturing and Transfer to Vietnam
In order to take advantage of our expanded Vietnam capacity, competitive labour
rates and excellent quality, we will be transferring the manufacture of all our
low power, high voltage DC-DC modules to our Vietnamese facility. Our
manufacturing facility in Minden, Nevada will close by June 2020. We expect
that this will result in annualised cost savings of approximately GBP4.0
million. Approximately GBP1-2 million of these cost savings will be reinvested
back into the business to expand and strengthen our new product introduction
team. The enlarged team will facilitate further transfers of existing
engineering services production from our facility in Sunnyvale, California to
Vietnam, as well as new standard products as they are introduced, resulting in
additional future savings. We expect to incur approximately GBP1-2 million in
costs associated with the full closure of the site over the next 12 months.
Supply Chain
In 2018, we saw significant cost inflation and extension of lead times for many
of the electrical components that we incorporate into our products,
particularly Mosfet transistors and multilayer surface mount capacitors. As a
result of this, we increased our safety inventories significantly and secured
critical components at prices above our standard costs in order to ensure we
could continue to support our customers production requirements. Since the
summer of 2018, we have seen certain component lead times reduce but the supply
of certain critical components such as Mosfets remains constrained. We are
continuing to manage our component inventory, building in a sufficient margin
of safety stock on critical lines wherever possible. There has been
significant focus on reducing inventory where possible, and we have seen
factory-held component inventory reduce in the first half of 2019.
New Enterprise Resource Planning ("ERP") System
Efficient and robust systems are essential in order for us to manage an
international business and supply chain with a highly diverse customer base.
We already operate a global Customer Relationship Management system across all
our businesses, which allows us to collaborate, share information and provide
efficient and effective customer service. In our 2017 Annual Report, we
announced a project to implement the latest version of SAP across our entire
global supply chain. The project will first focus on our sales companies in
Asia, Europe and North America, which already run a version of SAP, followed by
our China and Vietnam manufacturing facilities and our recent acquisitions.
We expect this implementation to have significant benefits in terms of factory
planning and customer responsiveness and it will give us significant
operational advantages with our factory systems running on the same platform as
our sales companies. Further gains will be realised when we migrate the
acquired Comdel and Glassman High Voltage businesses to the new platform.
We expect to go live with the sales companies in the second half of 2019, and
with the Chinese and Vietnamese factories in 2020. The Group capitalised GBP1.8
million (1H 2018: GBPNil) of development costs and incurred GBP0.5 million (1H
2018: GBPNil) of other project related costs in the first half of 2019 in respect
of this project.
Dividend
The Company makes quarterly dividend payments. Our strong cash flows and
confidence in the Group's prospects have enabled us to increase total dividends
for the first half by 6% to 35.0 pence per share (1H 2018: 33.0 pence per
share) despite the headwinds we are facing from the Semiconductor Equipment
Manufacturing sector and Section 301 tariffs.
The first quarter dividend payment of 17.0 pence per share was made on 11 July
2019. The second quarter dividend of 18.0 pence per share will be paid on 10
October 2019 to shareholders on the register at 13 September 2019.
The compound average growth rate in dividends over the last 10 years has been
14%.
Brexit
As previously reported, the Group analysed the implications of a no deal Brexit
and concluded that it would have limited operational implications. In the
first quarter of 2019, we implemented our contingency plan for a no deal Brexit
which involved transferring certain inventories held in support of 15 key
accounts from our UK warehouse to our German warehouse. While we will not be
immune to any macroeconomic consequences of a no deal Brexit, we are confident
that the actions we have taken will prevent any internal operational issues.
We have seen evidence of some customers bringing orders forward and increasing
their inventories as part of their Brexit planning. The magnitude of this
activity on the phasing of our orders and revenues is difficult to quantify but
we do not believe it to be substantial.
Environmental Impact and "Green" Products
XP Power has placed improved environmental performance at the heart of its
operations both in terms of minimising the impact its activities have on the
environment and, as importantly, in its product development strategy.
We have developed a class-leading portfolio of "green" products with
efficiencies up to 95% and many of these products also have low stand-by power
(a feature to reduce the power consumed while the end equipment is not
operational but in stand-by mode). Revenues for these ultra-high efficiency
"green" products continue to grow and are up by 43% on a reported basis to GBP
28.1 million (1H 2018: GBP19.7 million) representing 28% of total revenue (1H
2018: 21%). The RF power products added to our portfolio as a result of the
acquisition of Comdel and the majority of the high power, high voltage products
added to our portfolio as a result of the acquisition of Glassman High Voltage
are not classified as "green" products.
Outlook
We continue to see a robust performance from our Healthcare, Industrial and
Technology businesses, however, a combination of continued softness in the
Semiconductor Equipment Manufacturing sector and the task of recovering Section
301 tariffs present us with a continuing challenge as we enter the second
half.
Our Vietnamese manufacturing capability puts us in a strong position to
mitigate the impact of Section 301 tariffs. The transfer of production from
China to Vietnam, and the qualification of product by our key customers once
transferred, is key to restoring our margins to historical levels. Once this
is achieved, our production footprint should give us a compelling cost
advantage over the majority of our competitors who produce predominantly in
China. Our margins in 2020 will also start to benefit from the closure of our
Minden facility and the transfer of the Minden-built products to Vietnam.
Although we do not anticipate any meaningful upturn in the Semiconductor
Equipment Manufacturing sector before 2020, once the recovery takes hold we
expect the combination of our recent design wins and the cyclical recovery to
produce significant growth in this sector.
We remain conscious of potential risks arising from the global macroeconomic
challenges, the Board expects further revenue growth in the second half of the
year notwithstanding the current softness in the Semiconductor Equipment
Manufacturing market.
We believe we are well along the path to achieving our vision of becoming the
first-choice power solutions provider to our existing and target customer base.
Independent review report to XP Power Limited
Report on review of interim financial information
Introduction
We have reviewed the accompanying condensed consolidated financial information
of XP Power Limited ("the Company") and its subsidiaries ("the Group") set out
on pages 14 to 26, which comprise the condensed consolidated balance sheet of
the Group as at 30 June 2019, the condensed consolidated statements of
comprehensive income, changes in equity and cash flows for the 6-month period
then ended and the related notes. Management is responsible for the preparation
and presentation of this condensed consolidated interim financial information
in accordance with International Accounting Standard 34 Interim Financial
Reporting as adopted by the European Union and the Disclosure and Transparency
Rules of the United Kingdom's Financial Conduct Authority. Our responsibility
is to express a conclusion on this interim financial information based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410, Review of Interim Financial Information Performed by the
Independent Auditor of the Entity. A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the half-yearly financial
report, which comprise the "Interim Results" set out on pages 1 to 3, "Interim
Statement" set out on pages 4 to 12 and "Risks and uncertainties" set out on
pages 27 to 28, and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the financial information.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the accompanying condensed consolidated interim financial
information is not prepared, in all material respects, in accordance with
International Accounting Standard 34 Interim Financial Reporting as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
PricewaterhouseCoopers LLP
Public Accountants and Chartered Accountants
Singapore,
1 August 2019
XP Power Limited
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2019
GBP Millions Note Six months ended Six months ended
30 June 2019 30 June 2018
(Unaudited) (Unaudited)
Revenue 5 98.9 93.2
Cost of sales (54.8) (49.7)
Gross profit 44.1 43.5
Expenses
Distribution and marketing (20.3) (18.3)
Administrative (3.0) (1.1)
Research and development (6.3) (5.2)
Operating profit 14.5 18.9
Finance charge (1.6) (0.4)
Profit before income tax 12.9 18.5
Income tax expense 6 (2.5) (3.8)
10.4 14.7
Profit after income tax
Other comprehensive income:
Items that may be reclassified
subsequently to profit or loss:
Cash flow hedges * 0.5
Exchange differences on translation (0.2) 1.3
of foreign operations
(0.2) 1.8
Items that will not be reclassified
subsequently to profit or loss:
Currency translation differences
arising from consolidation * -
Other comprehensive (loss)/income,
net of tax (0.2) 1.8
Total comprehensive income 10.2 16.5
Profit attributable to:
- Equity holders of the Company 10.3 14.6
- Non-controlling interests 0.1 0.1
10.4 14.7
Total comprehensive income
attributable to:
- Equity holders of the Company 10.1 16.3
- Non-controlling interests 0.1 0.2
10.2 16.5
Earnings per share attributable to Pence per Pence per
equity holders of the Company Share Share
Basic 8 53.8 76.4
Diluted 8 52.8 74.9
* Balance is less than GBP100,000.
The above condensed consolidated statement of comprehensive income should be
read in conjunction with the accompanying notes.
XP Power Limited
Condensed Consolidated Balance Sheet
As at 30 June 2019
GBP Millions Note At 30 At 31
June 2019 December
(Unaudited) 2018
ASSETS
Current assets
Corporate tax recoverable 0.8 0.8
Cash and cash equivalents 10.8 11.5
Inventories 51.2 56.5
Trade receivables 33.2 33.0
Other current assets 3.5 3.3
Derivative financial instruments 0.1 *
Total current assets 99.6 105.1
Non-current assets
Goodwill 54.0 54.1
Intangible assets 9 46.6 43.6
Property, plant and equipment 31.4 30.7
Right-of-use assets 11 5.5 -
Deferred income tax assets 1.0 0.6
ESOP loans to employees 0.1 0.2
Total non-current assets 138.6 129.2
Total assets 238.2 234.3
LIABILITIES
Current liabilities
Current income tax liabilities 3.6 4.2
Trade and other payables 22.4 22.4
Derivative financial instruments 0.1 0.2
Lease liabilities 11 1.9 -
Total current liabilities 28.0 26.8
Non-current liabilities
Accrued consideration 1.4 1.4
Borrowings 61.2 63.5
Deferred income tax liabilities 5.4 4.7
Provisions 0.1 0.5
Lease liabilities 11 3.8 -
Total non-current liabilities 71.9 70.1
Total liabilities 99.9 96.9
NET ASSETS 138.3 137.4
EQUITY
Equity attributable to equity
holders of the Company
Share capital 27.2 27.2
Treasury shares and share option 2.1 1.1
reserve
Merger reserve 0.2 0.2
Hedging reserve 0.1 0.1
Translation reserve 3.8 4.0
Other reserve (0.8) (0.8)
Retained earnings 104.8 104.6
137.4 136.4
Non-controlling interests 0.9 1.0
TOTAL EQUITY 138.3 137.4
* Balance is less than GBP100,000.
The above condensed consolidated balance sheet should be read in conjunction
with the accompanying notes.
XP Power Limited
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2019
GBP Millions
Attributable to equity holders of the
Company
Share Treasury Merger Hedging Translation Other Retained Total Non-controlling interests Total
capital shares reserve reserve reserve reserve earnings Equity
Note and
share
option
reserve
27.2 0.4 0.2 (0.2) (0.4) 89.6 116.0 0.9 116.9
Balance at 1 (0.8)
January 2018
Changes in - - - - - - 0.4 0.4 - 0.4
accounting
policy
Restated total 27.2 0.4 0.2 (0.2) (0.4) (0.8) 90.0 116.4 0.9 117.3
equity as at 1
January 2018
(unaudited)
Sale of treasury - 0.7 - - - - (0.2) 0.5 - 0.5
shares
Employee share - 0.3 - - - - - 0.3 - 0.3
option plan
expenses, net of
tax
Dividends paid 7 - - - - - - (9.0) (9.0) (0.2) (9.2)
Exchange - - - - 1.2 - - 1.2 0.1 1.3
difference
arising from
translation of
financial
statements of
foreign
operations
Net change in - - - 0.5 - - - 0.5 - 0.5
cash flow hedges
Profit for the - - - - - - 14.6 14.6 0.1 14.7
year
Total - - - 0.5 1.2 - 14.6 16.3 16.5
comprehensive 0.2
income for the
period
Balance at 30 27.2 1.4 0.2 0.3 0.8 (0.8) 95.4 124.5 0.9 125.4
June 2018
(unaudited)
27.2 1.1 0.2 0.1 4.0 104.6 136.4 1.0 137.4
Balance at 1 (0.8)
January 2019
Sale of treasury - 0.3 - - - - (0.1) 0.2 - 0.2
shares
Employee share - 0.7 - - - - - 0.7 - 0.7
option plan
expenses, net of
tax
Dividends paid 7 - - - - - - (10.0) (10.0) (0.2) (10.2)
Exchange - - - - (0.2) - - (0.2) - (0.2)
difference
arising from
translation of
financial
statements of
foreign
operations
Net change in - - - - - - - - - -
cash flow hedges
Profit for the - - - - - - 10.3 10.3 0.1 10.4
year
Total - - - - (0.2) - 10.3 10.1 0.1 10.2
comprehensive
income for the
period
Balance at 30 27.2 2.1 0.2 0.1 3.8 (0.8) 104.8 137.4 0.9 138.3
June 2019
(unaudited)
The above condensed consolidated statement of changes in equity should be read
in conjunction with the accompanying notes.
XP Power Limited
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2019
GBP Millions Six months ended Six months ended
30 June 2019 30 June 2018
(Unaudited) (Unaudited)
Cash flows from operating activities
Profit after income tax 10.4 14.7
Adjustments for:
- Income tax expense 2.5 3.8
- Amortisation and depreciation 6.1 3.9
- Finance charge 1.6 0.4
- Equity award charges 0.5 0.3
- Fair value (gain)/loss on derivative (0.2) 0.4
financial instruments
- Unrealised currency translation (gain)/ (0.3) 0.7
loss
Change in the working capital, net of effects
from acquisitions:
- Inventories 5.3 (10.1)
- Trade and other receivables (0.6) (4.5)
- Trade and other payables 0.4 6.1
- Provision for liabilities and other (0.5) 0.1
charges
Cash generated from operations 25.2 15.8
Income tax paid (2.6) (2.4)
Net cash provided by operating activities 22.6 13.4
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired - (35.6)
Purchases and construction of property, plant (2.6) (2.8)
and equipment
Capitalisation of research and development (4.4) (2.8)
expenditure
Capitalisation of intangible software and
software under development (1.9) -
Proceeds from disposal of property, plant and 0.1 -
equipment
Repayment of ESOP loans 0.1 0.1
Net cash used in investing activities (8.7) (41.1)
Cash flows from financing activities
Proceeds from borrowings - 37.3
Repayment of borrowings (2.4) (3.5)
Payment of lease liabilities (0.8) -
Sale of treasury shares 0.3 0.7
Interest paid (1.4) (0.4)
Dividends paid to equity holders of the Company (10.0) (9.0)
Dividends paid to non-controlling interests (0.2) (0.2)
Net cash (used in)/provided by financing (14.5) 24.9
activities
Net decrease in cash and cash equivalents (0.6) (2.8)
Cash and cash equivalents at beginning of 11.5 15.0
financial period
Effects of currency translation on cash and (0.1) (0.1)
cash equivalents
Cash and cash equivalents at end of financial 10.8 12.1
period
The above condensed consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
XP Power Limited
Notes to the condensed consolidated financial statements
1. General information
XP Power Limited (the "Company") is listed on the London Stock Exchange
and incorporated and domiciled in Singapore. The address of its registered
office is 401 Commonwealth Drive, Lobby B #02-02, Haw Par Technocentre,
Singapore 149598.
The nature of the Group's operations and its principal activities is to
provide power supply solutions to the electronics industry.
These condensed consolidated interim financial statements are presented
in Pounds Sterling (GBP).
2. Basis of preparation
The condensed consolidated interim financial statements for the period
ended 30 June 2019 have been prepared in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority and with
International Accounting Standards ("IAS") 34 Interim Financial Reporting as
adopted by the European Union.
The condensed consolidated interim financial statements should be read
in conjunction with the annual financial statements for the year ended 31
December 2018 which have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European Union.
3. Going concern
The directors, after making enquiries, are of the view, as at the time of
approving the financial statements, that there is a reasonable expectation that
the Group will have adequate resources to continue operating for the
foreseeable future and therefore the going concern basis has been adopted in
preparing these financial statements.
4. Accounting policies
The condensed consolidated interim financial statements have been
prepared under the historical cost convention except for the fair value of
derivatives in accordance with IFRS 9 Financial Instruments.
The same accounting policies, presentation and methods of computation
are followed in these condensed consolidated interim financial statements as
were applied in the presentation of the Group's financial statements for the
year ended 31 December 2018 except for the adoption of new and amended
standards as set out below.
New and amended standards adopted by the Group
A number of new or amended standards became applicable
for the current reporting period and the Group had to
change its accounting policies and make modified retrospective adjustments as a
result of adopting IFRS 16 Leases.
The impact of the adoption of the new lease standard and accounting
policy is disclosed in note 11. The other standards did not have any impact on
the Group's accounting policies and did not require retrospective adjustments.
5. Segmented and revenue information
The Board of Directors considers and manages the business on a
geographic basis. Management manages and monitors the business based on the
three primary geographical areas: North America, Europe and Asia. All
geographic locations market the same class of products to their respective
customer base.
Revenue
The Group derives revenue from the transfer of goods at a point in time
in the following major product lines and geographical regions.
Analysis by class of customer
The revenue by class of customer is as follows:
Six months ended 30 June 2019
GBP Millions
Europe North Asia Total
America
Primary geographical markets
Semiconductor Equipment 0.2 17.1 0.2 17.5
Manufacturing
Technology 3.0 7.3 0.5 10.8
Industrial 24.1 15.4 7.7 47.2
Healthcare 5.6 16.5 1.3 23.4
32.9 56.3 9.7 98.9
Six months ended 30 June 2018
GBP Millions
Europe North Asia Total
America
Primary geographical markets
Semiconductor Equipment 0.2 24.2 0.5 24.9
Manufacturing
Technology 2.9 5.6 0.5 9.0
Industrial 21.0 14.0 4.1 39.1
Healthcare 5.6 13.2 1.4 20.2
29.7 57.0 6.5 93.2
5. Segmented and revenue information (continued)
Reconciliation of segment results to profit after income tax:
GBP Millions Six months ended Six months ended
30 June 2019 30 June 2018
(Unaudited) (Unaudited)
Europe 8.8 8.3
North America 15.6 20.1
Asia 3.3 2.1
Segment results 27.7 30.5
Research and development (4.5) (4.0)
Manufacturing (2.2) (1.7)
Corporate cost from operating segment (2.8) (4.1)
Adjusted operating profit 18.2 20.7
Finance charge (1.6) (0.4)
Specific items (3.7) (1.8)
Profit before income tax 12.9 18.5
Income tax expense (2.5) (3.8)
Profit after income tax 10.4 14.7
GBP Millions At 30 At 31
June 2019 December
(Unaudited) 2018
Total assets
Europe 30.8 28.8
North America 128.9 128.7
Asia 76.7 75.4
Segment assets 236.4 232.9
Unallocated deferred and current income 1.8 1.4
tax
Total assets 238.2 234.3
Reconciliation of adjusted measures
The Group presents adjusted operating profit and adjusted profit before tax by
making adjustments for costs and profits which management believes to be
significant by virtue of their size, nature or incidence or which have a
distortive effect on current year earnings. Such items may include, but are
not limited to, costs associated with business combinations, amortisation of
intangible assets arising from business combinations, reorganisation costs, and
ERP implementation costs.
In addition, the Group presents an adjusted profit after tax measure by making
adjustments for certain tax charges and credits which management believe to be
significant by virtue of their size, nature or incidence or which have a
distortive effect.
5. Segmented and revenue information (continued)
Reconciliation of adjusted measures (continued)
The Group uses these adjusted measures to evaluate performance and as a method
to provide shareholders with clear and consistent reporting. See below for a
reconciliation of operating profit to adjusted operating profit and a
reconciliation of profit before tax to adjusted profit before tax.
(i) Reconciliation of operating profit to adjusted operating profit:
GBP Millions Six months ended Six months ended
30 June 2019 30 June 2018
(Unaudited) (Unaudited)
Operating profit 14.5 18.9
Adjusted for:
Acquisition costs 0.4 0.4
Costs related to ERP implementation 0.5 -
Amortisation of intangible assets due to 1.6 1.0
business
combination
Changes in accounting policy - 0.4
Legal costs (refer to note 10) 1.2 -
3.7 1.8
Adjusted operating profit 18.2 20.7
Adjusted operating margin 18.4% 22.2%
(ii) Reconciliation of profit before tax to adjusted profit before tax:
Profit before tax ("PBT") 12.9 18.5
Adjusted for:
Acquisition costs 0.4 0.4
Costs related to ERP implementation 0.5 -
Amortisation of intangible assets due to 1.6 1.0
business
combination
Changes in accounting policy - 0.4
Legal costs (refer to note 10) 1.2 -
3.7 1.8
Adjusted PBT 16.6 20.3
6. Taxation
Income tax expense is recognised based on management's best estimate of the
weighted average annual income tax expected for the full financial year. The
effective tax rate as at 30 June 2019 is 19.4% (2018: 20.5%).
7. Dividends
Amounts recognised as distributions to equity holders of the Company in the
period:
Six months ended Six months ended
30 June 2019 30 June 2018
(Unaudited) (Unaudited)
Pence per GBP Millions Pence GBP Millions
share per share
Prior year third quarter 19.0 3.7 18.0 3.4
dividend paid
Prior year final dividend 33.0 6.3 29.0 5.6
paid
Total 52.0 10.0 47.0 9.0
7. Dividends (continued)
The dividends paid recognised in the interim financial statements relate to the
third quarter and final dividends for 2018.
The first quarterly dividend of 17.0 pence per share (2018: 16.0 pence per
share) was paid on 11 July 2019. A second quarterly dividend of 18.0 pence per
share (2018: 17.0 pence per share) will be paid on 10 October 2019 to
shareholders on the register at 13 September 2019.
8. Earnings per share
Earnings per share attributable to equity holders of the company arise from
continuing operations as follows:
GBP Millions Six months ended Six months
30 June 2019 ended
(Unaudited) 30 June 2018
(Unaudited)
Earnings
Earnings for the purposes of basic and 10.3 14.6
diluted earnings per share (profit for the
period attributable to equity holders of
the company)
Amortisation of intangibles associated due 1.6 1.0
to business combinations
Acquisition costs 0.4 0.4
Non-recurring tax benefits (0.5) (0.1)
Costs related to ERP implementation 0.5 -
Changes in accounting policy - 0.4
Legal costs (refer to note 10) 1.2 -
Earnings for adjusted earnings per share 13.5 16.3
Number of shares
Weighted average number of shares for the 19,145 19,114
purposes of basic earnings per share
(thousands)
Effect of potentially dilutive share 359 369
options (thousands)
Weighted average number of shares for the 19,504 19,483
purposes of dilutive earnings per share
(thousands)
Earnings per share from operations
Basic 53.8p 76.4p
Basic adjusted 70.5p 85.3p
Diluted 52.8p 74.9p
Diluted adjusted 69.2p 83.7p
* Balance is less than GBP100,000.
9. Intangible assets
Development Brand Trademarks Technology Customer Customer Intangible Intangible Total
costs relationships contracts software software
under
development
GBP Millions
Cost
At 31 36.4 1.0 1.0 5.2 18.6 0.6 0.2 1.7 64.7
December
2018
Additions 4.4 - - - - - * 1.9 6.3
Foreign * * * * * * * * 0.2
currency
translation
At 30 June 40.9 1.0 1.0 5.2 18.6 0.6 0.3 3.6 71.2
2019
Amortisation
At 31 16.3 0.1 0.9 0.8 2.4 0.6 * - 21.1
December
2018
Charge for 1.8 0.1 - 0.3 1.2 - * - 3.4
the year
Foreign * * - * * * * - 0.1
currency
translation
At 30 June 18.1 0.2 0.9 1.1 3.6 0.6 0.1 - 24.6
2019
Carrying
amount
At 30 June 22.8 0.8 0.1 4.1 15.0 - 0.2 3.6 46.6
2019
At 31 20.1 0.9 0.1 4.4 16.2 - 0.2 1.7 43.6
December
2018
* Balance is less than GBP100,000.
The amortisation period for development costs incurred on the Group's products
varies between three and seven years according to the expected useful life of
the products being developed.
Amortisation commences when the product is ready and available for use.
The remaining amortisation period for customer relationships ranges from three
to nine years.
10. Contingent liabilities
The Group is involved in a non-customer related legal dispute in North America,
which is currently in mediation. No provision in relation to the dispute has
been recognised in these condensed interim financial statements as it is not
probable that an outflow of economic benefits will occur, and the amount of
outflow, if any, cannot be estimated reliably.
11. Changes in accounting policies
This note explains the impact of the adoption of IFRS 16 Leases on the Group's
financial statements and discloses the new accounting policies that have been
applied from 1 January 2019 below.
The Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not
restated comparatives for the 2018 reporting period, as permitted under the
specific transitional provisions in the standard. The reclassifications and
the adjustments arising from the new leasing rules are therefore recognised in
the opening balance sheet on 1 January 2019.
11. Changes in accounting policies (continued)
(a) Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities in relation to
leases which had previously been classified as 'operating leases' under the
principles of IAS 17 Leases. These liabilities were measured at the present
value of the remaining lease payments, discounted using the lessee's
incremental borrowing rate as of 1 January 2019. The weighted average lessee's
incremental borrowing rate applied to the lease liabilities on 1 January 2019
was 5.3%.
GBP Millions
Operating lease commitments disclosed as at 31 December 7.8
2018
Discounted using the lessee's incremental borrowing rate 6.7
of 5.3% at the date of initial application
(Less): short-term leases recognised on a straight-line (0.2)
basis as expense
(Less): low-value leases recognised on a straight-line (0.2)
basis as expense
Lease liability recognised as at 1 January 2019 6.3
1 January 2019
Current 1.5
Non-current 4.8
Total lease liability 6.3
The associated right-of-use assets for property leases and other
right-of-use assets were measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments relating to
that lease recognised in the balance sheet as at 31 December 2018. There were
no onerous lease contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
The recognised right-of-use assets relate to the following types of
assets:
GBP Millions 30 June 2019 1 January 2019
Properties 5.3 6.1
Equipment 0.2 *
Total right-of-use assets 5.5 6.1
* Balance is less than GBP100,000.
The change in accounting policy affected the following items in the
balance sheet on 1 January 2019:
i) right-of-use assets - increase by GBP6.1 million
ii) lease liabilities - increase by GBP6.3 million
iii) accrued lease payments - decrease by GBP0.2 million
There was no impact on retained earnings on 1 January 2019.
11. Changes in accounting policies (continued)
(a) Adjustments recognised on adoption of IFRS 16 (continued)
Practical expedients applied
In applying IFRS 16 for the first time, the group has used the following
practical expedients permitted by the standard:
· the use of a single discount rate to a portfolio of leases with reasonably
similar characteristics;
· reliance on previous assessments on whether leases are onerous;
· the accounting for operating leases with a remaining lease term of less
than 12 months as
at 1 January 2019 as short-term leases;
· the exclusion of initial direct costs for the measurement of the
right-of-use asset at the date
of initial application;
· the use of hindsight in determining the lease term where the contract
contains options to
extend or terminate the lease; and
· for all leases, the Group has elected not to separate lease and non-lease
components, and instead accounts for these as a single lease component.
The Group has also elected not to reassess whether a contract is, or contains,
a lease at the date of initial application. Instead, for contracts entered
into before the transition date, the Group relied on its assessment made
applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a
Lease.
(b) The Group's leasing activities and how these are accounted for
The Group leases various offices, warehouses and equipment.
Rental contracts are typically made for fixed periods of 2 to 6 years but may
have extension options as described below. Lease terms are negotiated on an
individual basis and contain a wide range of different terms and conditions.
The lease agreements do not impose any covenants, but leased assets may not be
used as security for borrowings purposes.
Until the 2018 financial year, leases of property, plant and
equipment were classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) were charged to profit
or loss on a straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased asset is
available for use by the Group. Each lease payment is allocated between the
liability and finance cost. The finance cost is charged to profit or loss over
the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the lease term on a
straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the net present
value of the following lease payments:
· fixed payments (including in-substance fixed payments), less any lease
incentives receivable;
· variable lease payments that are based on an index or a rate;
· amounts expected to be payable by the lessee under residual value
guarantees;
· the exercise price of a purchase option if the lessee is reasonably
certain to exercise that
option; and
· payments of penalties for terminating the lease, if the lease term
reflects the lessees exercising
that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the lessee's
incremental borrowing rate is used, being the rate that the lessee would have
to pay to borrow the funds necessary to obtain an asset of similar value in a
similar economic environment with similar terms and conditions.
11. Changes in accounting policies (continued)
(b) The Group's leasing activities and how these are accounted for
(continued)
Right-of-use assets are measured at cost comprising the following:
· the amount of the initial measurement of lease liability;
· any lease payments made at or before the commencement date less any lease
incentives
received;
· any initial direct costs; and
· restoration costs.
Payment associated with short-term leases and leases of low-value assts are
recognised on a straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of 12 months or less. Low-value
assets comprise of IT equipment.
Extension and termination options
Extension and termination options are included in a number of property and
equipment leases across the Group. These terms are used to maximise
operational flexibility in terms of managing contracts. The majority of
extension and termination options held are exercisable only by the Group and
not by the respective lessor.
In determining the lease term, management considers all facts and circumstances
that create an economic incentive to exercise an extension option, or not
exercise a termination option. Extension options (or periods after termination
options) are only included in the lease term if the lease is reasonably certain
to be extended (or not terminated).
Risks and uncertainties
Like many other international businesses, the Group is exposed to a number of
risks and uncertainties which might have a material effect on its financial
performance. These include:
An event that causes a disruption to one of our manufacturing facilities
An event that results in the temporary or permanent loss of a manufacturing
facility would be a serious issue. As the Group manufactures 78% of revenues,
this would undoubtedly cause at least a short-term loss of revenues and profits
and disruption to our customers and therefore damage to reputation.
Product recall
A product recall due to a quality or safety issue would have serious
repercussions to the business in terms of potential cost and reputational
damage as a supplier to critical systems.
Shortage, non-availability or technical fault with regard to key electronic
components
The Group is reliant on the supply, availability and reliability of key
electronic components. If there is a shortage, non-availability or technical
fault with any of the key electronic components, this may impair the Group's
ability to operate its business efficiently and lead to potential disruption to
its operations and revenues.
Competition from new market entrants and new technologies
The power supply market is diverse and competitive. The Directors believe that
the development of new technologies could give rise to significant new
competition to the Group, which may have a material effect on its business. At
the lower end of the Group's target market, in terms of both power range and programme size, the barriers to entry are lower and there is, therefore, a risk that competition could quickly increase particularly from emerging low-cost manufacturers in Asia. Fluctuations of revenues, expenses and operating results due to an economic shock The revenues, expenses and operating results of the Group could vary significantly from period to period as a result of a variety of factors, some of which are outside its control. These factors include general economic conditions; adverse movements in interest rates; conditions specific to the market; seasonal trends in revenues, capital expenditure and other costs and the introduction of new products or services by the Group, or by their competitors. In response to a changing competitive environment, the Group may elect from time to time to make certain pricing, service, marketing decisions or acquisitions that could have a short-term material adverse effect on the Group's revenues, results of operations and financial condition. Dependence on key customers/suppliers The Group is dependent on retaining its key customers and suppliers. Should the Group lose a number of its key customers or key suppliers, this could have a material impact on the Group's financial condition and results of operations. However, for the six months ended 30 June 2019, no one customer accounted for more than 9% of revenue. Cyber security / Information systems failure The Group is reliant on information technology in multiple aspects of the business from communications to data storage. Assets accessible online are potentially vulnerable to theft and customer channels are vulnerable to disruption. Any failure or downtime of these systems or any data theft could have a significant adverse impact on the Group's reputation or on the results of operations. Risks relating to regulation, compliance and taxation The Group operates in multiple jurisdictions with applicable trade and tax regulations that vary. Failing to comply with local regulations or a change in legislation could impact the profits of the Group. In addition, the effective tax rate of the Group is affected by where its profits fall geographically. The Group effective tax rate could therefore fluctuate over time and have an impact on earnings and potentially its share price. Risks and uncertainties (continued) Strategic risk associated with valuing or integrating new acquisitions The Group may elect from time to time to make strategic acquisitions. A degree of uncertainty exists in valuation and in particular in evaluating potential synergies. Post-acquisition risks arise in the form of change of control and integration challenges. Any of these could have an effect on the Group's revenues, results of operations and financial condition. Loss of key personnel or failure to attract new personnel The future success of the Group is substantially dependent on the continued services and continuing contributions of its Directors, senior management and other key personnel. The loss of the services of key employees could have a material adverse effect on own business. Exposure to exchange rate fluctuations The Group deals in many currencies for both its purchases and sales including US Dollars, Euros and its reporting currency Pounds Sterling. In particular, North America represents an important geographic market for the Group where virtually all the revenues are denominated in US Dollars. The Group also sources components in US Dollars and the Chinese Renminbi. The Group therefore has an exposure to foreign currency fluctuations. This could lead to material adverse movements in reported earnings. Directors' responsibility statement The interim results were approved by the Board of Directors on 1 August 2019. The Directors confirm to the best of their knowledge that: · the unaudited interim results have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union; and · the interim results include a fair view of the information required by DTR 4.2.7 (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year) and DTR 4.2.8 (disclosure of related party transactions and changes therein). The Directors of XP Power Limited are as follows: James Peters Non-Executive Chairman Duncan Penny Chief Executive Officer Gavin Griggs Chief Financial Officer Andy Sng Executive Vice President, Asia Terry Twigger Senior Non-Executive Director Polly Williams Non-Executive Director Signed on behalf of the Board by James Peters Duncan Penny Non-Executive Chairman Chief Executive Officer 1 August 2019 END
(END) Dow Jones Newswires
August 01, 2019 02:00 ET (06:00 GMT)
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