Annual Financial Report

22 February 2016

XP Power Limited

(“XP Power” or “the Group”)

Annual Results for the year ended 31 December 2015

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 2015.

Highlights

	Year ended	Year ended
	31 December	31 December	Change
	2015	2014
Order intake	£110.5m	£105.1m	+5%
Revenue	£109.7m	£101.1m	+9%
Gross margin	49.8%	49.6%	+20bps
Adjusted profit before tax1	£25.7m	£24.3m	+6%
Adjusted profit after tax and minority interest1	£20.2m	£19.5m	+4%
Adjusted diluted earnings per share1	104.3p	101.1p	+3%
Operating cash flow	£21.0m	£21.8m	-4%
Net (debt)/cash	(£3.7)m	£1.3m
Final dividend per share	24.0p	22.0p	+9%
Total dividend per share	66.0p	61.0p	+8%

¹ Adjusted for one-off costs associated with acquisitions of £0.3 million (2014: nil)

• Revenues increased by 9% (4% in constant currency) to £109.7 million (2014: £101.1 million) setting a new record for the Group

• Revenues from XP Power’s own-designed products increased by 11% (7% in constant currency) to £74.6 million (2014: £67.2 million) to reach a record 68% of revenue

• Sales of high efficiency “green” products increased by 27% to £23.6 million (2014: £18.6 million) representing 22% of revenues 

• Record order intake of £110.5 million (2014: £105.1 million) – an increase of 5% (1% in constant currency)

• Power converter manufacturing at Vietnam facility now at break-even following ramp-up in production volumes

• Acquisition of EMCO enables the Group to enter the high voltage DC-DC module market – a significant growth opportunity, with multiple customer synergies already identified

• Total dividend for the year increased by 8% to 66 pence per share (2014: 61 pence per share)

James Peters, Chairman, commented: 

“I am pleased to be reporting on another successful year.  2015 was a record year for order intake, revenues and the mix of own-designed products, bolstered by the growth in our high efficiency ‘green’ product offering.  In addition, our Vietnam manufacturing facility is now at break-even as production volumes of power converters continues to build.

“Having targeted suitable acquisitions for some time,  we are delighted to welcome EMCO - a successful high voltage DC-DC module manufacturer - to the Group.  EMCO operates in an attractive, high value niche market and, with significant customer synergies already identified, will add to our growth this year.  We are confident the business will have a bright future as part of XP Power and are excited about our move into the high voltage arena.

“While early 2016 has seen economic headwinds strengthen in some of our markets, we consider that the Group remains well positioned, with good momentum established as our design pipeline continues to grow and a healthy order book.  We are encouraged by the progress made by the Group during 2015 and look forward to another successful year in 2016.”

Enquiries:

XP Power                                                                                                                                      

Duncan Penny, Chief Executive                   [phone]
Jonathan Rhodes, Finance Director              [phone]

Citigate Dewe Rogerson                     [phone]
Kevin Smith/Jos Bieneman

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-in 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 www.xppower.com

Chairman’s Statement

Our Progress in 2015

2015 was another year of significant progress, despite challenging economic conditions for the industrial electronics markets. Initial indications are that the market declined in 2015 but, against this backdrop, I am pleased to report that the Group achieved record levels of order intake and reported revenues.

We expanded the Group with two acquisitions, the larger of which gives us an exciting foothold in the high voltage DC-DC module market. We also ramped-up power converter production in our Vietnam facility, giving us a cost advantage over many of our competitors.

Our business systems have been further upgraded and we have relaunched our website to provide significant functionality improvements to our customers. In addition, we have further strengthened our Board, setting the stage for the next phase of our development.

Results

Our financial performance for the year was encouraging.  Revenues were a record £109.7 million (2014: £101.1 million), an increase of 9% (4% in constant currency). Order intake was £110.5 million (2014: £105.1 million), setting a new record for the Group and representing an increase of 5% (1% in constant currency).

Gross margin improved to 49.8% (2014: 49.6%) due to improved product mix despite start-up costs associated with power converter production in Vietnam of approximately £0.3 million and continued labour cost appreciation in China.

Profit before tax was £25.7 million, after adjusting for £0.3 million of one-off costs associated with acquisitions, an increase of 6% over the £24.3 million reported in 2014.  The adjusted diluted earnings per share increased by 3% to 104.3 pence (2014: 101.1 pence).

Acquisitions

On 25 November 2015 we announced the acquisition of the assets and business of EMCO, a specialist in high voltage DC-DC modules, for a total consideration of US$11.7 million (£7.7 million) paid in cash on completion. 

EMCO is based in Northern California, with manufacturing operations in Nevada, and supplies the industrial and healthcare sectors with a broad range of standard, modified and custom high voltage products. 

We are delighted to welcome EMCO to the XP Power Group and are excited about the opportunity of offering its high voltage DC-DC modules suitable for an array of applications through our well established sales channel. As well as bringing a number of exciting new customers, this acquisition will enable us to provide our existing customers with a comprehensive product offering in high voltage technologies, a market segment with robust demand fundamentals and one in which we did not previously specialise.  We are confident that EMCO will have a very successful future as part of XP Power.

Strengthening Our Board

We continued the process of strengthening our Board of Directors during the year.

Terry Twigger joined our Board with effect from 1 January 2015. Terry is the Senior Non-Executive Director, Chairman of the Audit Committee and a member of the Nominations Committee and Remuneration Committee. As the former CEO of Meggitt PLC, Terry has a wealth of international and public company experience in the engineering sector, including numerous successful acquisitions.

I am also pleased to welcome Polly Williams, who joined our Board on 1 January 2016 as a Non-Executive Director. Polly, a chartered accountant, is a former partner at KPMG LLP and holds a number of Non-Executive Directorship roles, including at Jupiter Fund Management plc, TSB Group plc and Daiwa Capital Markets Europe Ltd. Polly will chair XP Power’s Remuneration Committee and is a member of the Audit Committee.

Following these new appointments John Dyson will not be offering himself for re-election at the forthcoming Annual General Meeting. I would like to take this opportunity to thank John for his significant contribution to XP Power over the last 16 years.

With these latest appointments, 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 24 pence per share for the fourth quarter of 2015. This dividend will be payable to members on the register on 11 March 2016 and will be paid on 4 April 2016.

When combined with the interim dividends for the previous quarters, the total dividend for the year will be 66 pence per share (2014: 61 pence), an increase of 8%.

The compound average growth rate of our dividend has been 15% per annum 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 having impressive lengths of service, and we have now gained new talent with the acquisition of EMCO. We also conducted an employee cultural survey to assess our people’s perspective of our strengths and where we can improve. I was pleased that one of the main findings from our 2015 employee survey was that our employees are proud to be part of our Company, highlighting the significant engagement we have with our colleagues.

During 2015 we undertook an exercise to identify and distil the key aspects of the XP Power culture that has made our Company successful over a long period of time. Core values of integrity, knowledge, flexibility, speed and customer focus were identified as the key ingredients. These characteristics are part of our DNA and have been responsible for driving our performance and customer service commitment over the long term.

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 material and do not contain substances which are harmful to the environment. These XP “Green” Power products grew at an impressive rate of 27% in 2015 and represented 22% of total revenue for the 2015 financial year.

Our Vietnam facility is the most environmentally friendly factory in the industry with a well-insulated building envelope, incorporating ultra-efficient air conditioning, low energy lighting, water capture and recycling, as well as a solar panel array. This is not only important to our customers but resonates with our employees.

We are building a sustainable business that can grow and prosper in the long term through providing genuine value to our customers, treating and rewarding our people appropriately, and adhering to our business ethics.

Outlook

We are encouraged by the stronger order intake experienced in the fourth quarter of 2015 following the weakness we saw in the North American order intake in the third quarter and by the progress of the integration of EMCO. Despite the mixed global economic picture, we have positive momentum and therefore expect further growth in revenues in 2016.

We now have a high voltage product offering, which we believe we can grow using our direct sales channel and approved supplier status with our existing customer base. We also have a strong balance sheet and a business model that provides excellent cash generation to fund our existing needs and targeted acquisitions to further broaden our product offering and engineering capabilities.

James Peters

Chairman

Operating and Financial Review

Review of our year

While the market for industrial electronics remained challenging in 2015, we continued to execute our strategy successfully. We reported record order intake and revenues in the year, as well as delivering our highest ever level of own designed/own manufactured product revenues.

We also completed a key acquisition taking us into a new product area. The acquisition of EMCO expands our product offering into the arena of high voltage DC-DC modules and we are extremely excited about this growth opportunity.

We have ramped up production volumes of power converters at our Vietnam facility, giving us a cost advantage over many of our competitors. From an operational perspective we have also further enhanced our business systems and reduced the lead times of some of our key products by applying lean manufacturing principles. In December 2015 we launched our revamped website to provide much greater functionality and a richer customer experience.

We remain excited by the future prospects for our business.

Strategic progress

We continue to execute a well-defined strategy which has enabled our Company to take market share consistently over many years.  This strategy can be summarised as follows:

• Development of a strong pipeline of leading-edge products;

• Expansion of our range of high efficiency “green” products;

• Targeting key accounts and increasing the penetration of existing key accounts;

• Enhancing our value proposition to our customers by becoming a manufacturer;

• Increasing the contribution of our own designed/manufactured products; and

• Leading our industry on environmental matters.

When we review this list the clear evidence is that we continue to make significant progress. We have the broadest, most up to date portfolio of products in the industry, many of which are class leading in terms of efficiency and low stand-by power. Our portfolio of XP “Green” Power products grew an impressive 27% in 2015 to £23.6 million (2014: £18.6 million), demonstrating how enthusiastically these products are now being adopted by our customers. We also continue to see revenues from our own designed/manufactured products grow at a faster rate than our 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 clearly recognised as 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 £74.6 million in the year, representing 68% of revenue (2014: 66%). We expect further growth in this area in 2016.

As we have gained preferred or approved supplier status with numerous blue chip companies, we are being exposed to new opportunities in new product areas. Our Company is an attractive partner to larger blue chip customers who are keen to reduce costs by dealing with a smaller number of key suppliers. 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 companies. We have established this position with our standard product offering but now see attractive opportunities for these larger customers to engage in 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 is an excellent example of this. EMCO specialises in high voltage DC-DC converters or modules. We supply AC-DC power converters to many customers that are also using these high voltage products and our AC-DC converter solution may often, in fact, be providing the DC power to the high voltage modules in the customer’s system. Until now we have not had access to this high voltage technology and the acquisition opens up a significant growth opportunity in an attractive niche market characterised by numerous small players.

Productivity will be a key focus area for us moving forward. We have 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 are striving to retain and build on the core values of knowledge, flexibility and speed that have underpinned our success to date. We have continued to upgrade our systems and have employed new talent with experience in complex operations and lean process techniques.

Marketplace

In 2015, during the second half in particular, we have seen a number of interesting changes in the revenue profile of the different geographies and sectors which we serve.

Since 2012 we have seen consistent growth in our North American business. In 2013 revenues grew 9% to $78.4 million; in 2014 revenues grew a further 8% to $84.9 million. In 2015 revenues only grew 1% to $85.5 million and that growth essentially came from the addition of EMCO, which contributed revenues of $0.8 million from 25 November 2015. The weakness came entirely from the industrial sector which declined 18%, although this was almost entirely compensated for by an impressive 31% growth in the technology sector. After a number of challenging years the technology sector in North America has bounced back strongly. Technology represented 30% of revenues in North America in 2015 (2014: 23%), offsetting the weakness in the industrial sector which represented 31% of revenues in 2015 (2014: 39%). Order intake during the third quarter of 2015 was noticeably weak at only $17.3 million but orders rebounded to $23.6 million in the fourth quarter, giving us greater confidence for 2016.

Our Asian business continued to grow despite the widely reported slow-down in China. Asian revenues grew 9% in 2015 to $13.7 million (2014: $12.6 million). The customers driving this increase generally have demand for their end products outside of the emerging markets. Asia followed a similar pattern to North America, with the technology and healthcare sectors demonstrating much stronger growth than industrial.  Healthcare revenues showed very strong growth of 24% in Asia. Technology revenues also grew robustly at 16% whereas industrial revenues were flat.

Our European business grew by 7% to £45.1 million (2014: £42.2 million) having declined in the prior year. This was despite the translational effect of a comparatively weak Euro. The industrial business in Europe grew by 6% but could not outpace the effect of new customer programmes within healthcare, which grew by 11% in 2015.

The geographic split of reported revenue was maintained year-on-year.  Overall, North America represented 51% of revenue (2014: 51%), Asia represented 8% of revenue (2014: 8%) and Europe represented 41% of revenue (2014: 41%). The average exchange rate for the US Dollar compared to Sterling was 1.54 in 2015 versus 1.65 in 2014, representing a 6.7% strengthening of the US Dollar. This caused North America and Asia revenues to be inflated due to translation.

The overall picture by sector reflects the narrative above. Industrial represented 44% of revenue (2014: 49%), healthcare represented 31% of revenue (2014: 31%) and technology represented 25% of revenue (2014: 20%). 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 business model. 

We continue to perform well against our traditional established competition. Our broad standard product offering and excellent customer service delivered by the largest direct sales force in our industry is a compelling proposition. We expect our competition to emerge from Asia as companies with low cost manufacturing and engineering capabilities attempt to tap into areas of the industrial and healthcare markets in Europe and North America. As a result 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.

Expanding our global operations

In May 2015 we acquired a 51% stake in a value-added distributor of power products in South Korea for a cash consideration of US$2.1 million. The company has been distributing XP Power’s products since 2008 and, although it is a niche player, South Korea is an interesting market for industrial electronics. Importantly, the company has an excellent engineering services capability which enables it to customise power solutions to make them easier to integrate into the customer’s end equipment.

We also set up a sales office in Israel early in 2015. Although typical design-in cycles from identification of an opportunity to realising the first revenue are around 18 months, we are already identifying good opportunities in this high technology market.

We continue to actively seek acquisitions that will enable us to expand our product portfolio and engineering capabilities.

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. We increased our design engineering resource and capabilities during the year in both our North American and United Kingdom design centres, including the introduction of a firmware capability for which we are seeing increasing demand. We released 22 new product families in 2015 (2014: 26) with 17 of these classified as ultra-high efficiency.

New product releases included the GCS265 and GCS350 series which extend our popular GCS180 and GCS250 product families upwards in power. These new ranges offer high efficiency at a lower price point and have been enthusiastically received by our customers.

With the acquisition of EMCO we gained a new design centre of talented engineers in Northern California specialising in high voltage DC-DC modules. These products are used in a multitude of applications including semiconductor manufacturing, healthcare, industrial printing, electrostatic precipitation, detection, analytical devices and many others. This is an exciting new area for us and our sales team is already identifying new opportunities for these products within our existing customer base.

Manufacturing

In 2015 we produced 1.4 million power converters compared with 1.3 million in 2014. Production volumes of magnetics windings at our Vietnam facility have continued to ramp-up and in 2015 we produced 4.3 million windings compared to 3.6 million in 2014. In the fourth quarter of 2014 we started to produce the first pre-production samples of complete power converters in Vietnam. We are pleased to report that power converter production in Vietnam has continued to build and totalled 0.2 million units in 2015. This addition of a second manufacturing site adds much needed capacity and also enhances our cost competitiveness as production costs in Vietnam are significantly lower than our existing Chinese facility.

The quality from Vietnam has been excellent and we are pleased with the progress made at this facility and excited by its future potential.

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 an even better service to our customers and reduce our freight costs.

Enhancing our digital presence

In December 2015 we launched our completely revamped website at xppower.com. The new mobile-optimised site is specifically designed to improve interaction and the overall user experience. Site enhancements include additional product selector tools, a rapid datasheet finder, and more comprehensive company information covering topics such as standards certification, conformance to environmental specifications and quality assurance information.

The product section has been extended to include high voltage power modules following the recent completion of the EMCO acquisition.

The site provides localised content in French, German, Italian and Chinese.

Distribution

In the first quarter of 2014 we announced that we had been accepted as a supplier to Digikey, the electronic components distributor, in addition to our existing arrangements with Premier Farnell/Newark. These are excellent channels to service smaller customers and to gain widespread brand recognition for our products. 2015 was therefore the first full year of the Digikey arrangement and we are pleased that this has provided excellent growth in this channel, enabling us to reach even more customers.

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.

We also began running the EMCO sales through SAP from the beginning of 2016 so we can now see the entire sales business real time on one consolidated system.

This integrated approach ensures that we have the robust systems and reporting necessary to support our future growth.

Revenue and order intake

Revenues grew 9% over the prior year (4% in constant currency) to £109.7 million (2014: £101.1 million), setting a new record for the Group. Order intake grew by 5% (1% in constant currency) to £110.5 million (2014: £105.1 million), also setting a new record for the Group. Revenues from our own designed product – a key indicator of our strategic progress – grew by 11% (or approximately 7% in constant currency) to £74.6 million (2014: £67.2 million), representing 68% of revenue (2014: 66%) and setting another new record.

Margins

Gross margin showed modest improvement to 49.8% (2014: 49.6%), largely due to product mix and despite start-up costs associated with power converter production in Vietnam of approximately £0.3 million and continued labour cost inflation in China. Operating margins declined from 24.2% in 2014 to 23.3% primarily as a result of the one-off costs associated with acquisitions of £0.3 million (2014: nil) as well as the extra resource added to our engineering and sales functions to drive future revenue growth.

Profit before tax was £25.4 million (2014: £24.3 million). After adding back one-off costs associated with acquisitions of £0.3 million (2014: nil), adjusted profit before tax was £25.7 million, an increase of 6% over that reported in 2014.

Taxation

The tax charge for the year was £5.5 million (2014: £4.8 million), which represents an effective tax rate of 21.7% (2014: 19.8%). 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 2016, when it is likely to be in the range of 24% to 25%.

Earnings per share

Basic earnings per share increased by 2% to 103.7 pence compared to 102.1 pence in 2014. Diluted earnings per share increased by 2% to 102.8 pence compared with 101.1 pence in 2014. After adding back one-off costs associated with acquisitions of £0.3 million, adjusted diluted earnings per share was 104.3 pence, an increase of 3% over the 101.1 pence achieved in 2014.

Cash flow, funding and net cash

Our high margin business model and modest capital requirements continue to produce excellent free cash flows.

Net debt at the end of 2015 was £3.7 million compared with a net cash position of £1.3 million at the end of 2014. This net debt position was after returning £12.0 million to shareholders in the form of dividends and paying £9.3 million to finance our 2015 acquisitions.

In order to finance the acquisition of EMCO, 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 commencing in June 2016 and ending in December 2017. The facility is priced at LIBOR plus a margin of 0.95%.

In September 2015 the Group renewed its annual working capital facility at a level of US$12.5 million (2014: US$15.0 million). This facility stepped down to US$10.0 million from 1 January 2016, then reduces to US$7.5 million from 1 April 2016 and to US$5.0 million from 1 July 2016. Interest chargeable under this facility is priced at the Bank of England base rate plus a margin of 1.5%.

At 31 December 2015, £0.6 million of the working capital facility, representing 7%, was drawn down. Bank of Scotland PLC provides the facility.

Dividends

The attractive cash generative quality of our business model has enabled us to pursue a very 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 24 pence per share which together with the quarterly dividends already paid gives a total dividend for the year of 66 pence per share (2014: 61 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 convert Sterling and Euro long positions to cover the US Dollar short positions in its parent company. The Group had £11.3 million of forward currency contracts outstanding at 31 December 2015 (2014: £12.4 million).

Outlook for 2016

While we recognise a number of economic headwinds with the potential to impact our business in 2016 - notably slowing growth rates in China and North America -  we consider that we remain well positioned in our marketplace. We have good momentum as our design pipeline continues to grow, order intake in the fourth quarter of 2015 was strong at £30.0 million and we entered 2016 with a healthy order book.

In addition, following the acquisition of EMCO, we are excited by the prospects for our new high voltage DC-DC module product line, which will provide additional revenues this year. The combination of these factors gives us confidence that we should see further revenue growth in 2016.

We remain confident in the long term prospects for our Company.

XP Power Limited

Consolidated Statement of Comprehensive Income for the Financial year ended 31 December 2015

£ Millions	Note	2015	2014
Revenue	2	109.7	101.1
Cost of sales		(55.1)	(51)
Gross profit		54.6	50.1
Expenses
Distribution and marketing		(22)	(20.6)
Administrative		(1.2)	(0.7)
Research and development		(5.8)	(4.3)
Operating profit		25.6	24.5
Finance cost		(0.2)	(0.2)
Profit before income tax	2	25.4	24.3
Income tax expense	3	(5.5)	(4.8)
Profit for the year		19.9	19.5
Profit attributable to:
Equity holders of the Company		19.7	19.4
Non-controlling interests		0.2	0.1
		19.9	19.5
Earnings per share attributable to equity holders of the Company (pence per share)
- Basic	5	103.7	102.1
- Diluted	5	102.8	101.1

XP Power Limited

Consolidated Balance Sheet

As at 31 December 2015

£ Millions									Note	2015	2014
ASSETS
Current Assets
Cash and cash equivalents										4.9	3.8
Inventories										28.7	25.2
Trade receivables										17.5	16.0
Other current assets										2.4	1.7
Derivative financial instruments										-	0.3
Total current assets										53.5	47.0
Non-current assets
Goodwill										36.3	30.6
Intangible assets										11.9	9.9
Property, plant and equipment										16.1	14.4
Deferred income tax assets										0.4	0.3
ESOP loan to employees										0.7	0.9
Total non-current assets										65.4	56.1
Total assets										118.9	103.1
LIABILITIES
Current liabilities
Current income tax liabilities										1.2	1.7
Trade and other payables										14.6	14.4
Borrowings									6	4.0	2.5
Total current liabilities										19.8	18.6
Non-current liabilities
Provision for deferred contingent consideration									7	1.5	1.7
Borrowings										4.6	-
Deferred income tax liabilities										3.9	2.5
Total non-current liabilities										10.0	4.2
Total liabilities										29.8	22.8
NET ASSETS										89.1	80.3
EQUITY
Equity attributable to equity holders of the Company
Share capital										27.2	27.2
Merger reserve										0.2	0.2
Treasury shares										(1.0)	(1.1)
Hedging reserve										0.1	0.6
Translation reserve										(5.3)	(6.3)
Retained earnings										67.1	59.6
										88.3	80.2
Non-controlling interests										0.8	0.1
TOTAL EQUITY										89.1	80.3

XP Power Limited

Consolidated Statement of Cash Flows

For the financial year ended 31 December 2015

£ Millions		2015	2014
Cash flows from operating activities
Profit for the year		19.9	19.5
Adjustments for
- Income tax expense		5.5	4.8
- Amortisation and depreciation		3.8	3.1
- Finance cost		0.2	0.2
- ESOP expenses		0.1	0.1
- (Gain)/Loss on fair valuation of derivative financial instruments		(0.2)	0.6
- Unrealised currency translation loss		1.0	1.2
Change in working capital, net of effects from acquisitions:
- Inventories		(2.8)	(4.8)
- Trade and other receivables		(1.5)	(0.9)
- Trade and other payables		(0.2)	1.7
- Provision for liabilities and other charges		(0.1)	(0.1)
- Income tax paid		(4.7)	(3.6)
Net cash generated from operating activities		21.0	21.8
Cash flows from investing activities
Acquisition of a subsidiary, net cash of cash acquired		(0.6)	-
Acquisition of a business, net cash of cash acquired		(7.7)	-
Purchases and construction of property, plant and equipment		(2.5)	(2.9)
Research and development expenditure capitalised		(2.9)	(2.9)
Proceeds from disposal of property, plant and equipment		-	0.1
ESOP loans repaid		0.2	0.1
Net cash used in investing activities		(13.5)	(5.6)
Cash flows from financing activities
Proceeds from borrowings/(repayment of borrowings)		8.0	(7.3)
Sale of treasury shares		0.3	0.1
Purchase of treasury shares by ESOP		(0.3)	(0.3)
Interest paid		(0.1)	(0.1)
Dividend paid to equity holders of the Company		(12.0)	(10.8)
Dividend paid to non-controlling interests		(0.2)	(0.2)
Net cash used in financing activities		(4.3)	(18.6)
Net increase/(decrease) in cash and cash equivalents		3.2	(2.4)
Cash and cash equivalents at beginning of financial year		1.3	3.8
Effects of currency translation on cash and cash equivalents		(0.2)	(0.1)
Cash and cash equivalents at end of financial year		4.3	1.3

Notes to the Annual Results Statement

For the year ended 31 December 2015

1. Basis of preparation

These financial statements are presented in Pounds Sterling and have 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 sales by end market to assist the readers of this report.

The geographical segmentation is as follows:

£ Millions		2015	2014
Revenue
Europe		45.1	42.2
North America		55.7	51.3
Asia		8.9	7.6
Total Revenue		109.7	101.1
Segment result
Europe		6.7	7.6
North America		14.6	13.6
Asia		1.4	1.7
Segment result		22.7	22.9
Research and development		(5.8)	(4.3)
Finance cost		(0.2)	(0.2)
Corporate recovery from operating segment		8.7	5.9
Profit before income tax		25.4	24.3
Income tax expense		(5.5)	(4.8)
Profit for the year		19.9	19.5

Analysis by end market

The revenue by end market was as follows:

	Year to 31 December 2015				Year to 31 December 2014
		North				North
£ Millions	Europe	America	Asia	Total	Europe	America	Asia	Total
Technology	6.7	16.8	3.3	26.8	6.5	11.9	2.6	21.0
Industrial	27.1	17.6	3.9	48.6	25.5	19.9	3.7	49.1
Healthcare	11.3	21.3	1.7	34.3	10.2	19.5	1.3	31.0
Total	45.1	55.7	8.9	109.7	42.2	51.3	7.6	101.1

3.       Income taxes

	£ Millions	2015	2014
	Singapore corporation tax   - current year	1.6	1.2
	Overseas corporation tax  - current year	2.8	3.3
	- adjustment in respect of prior year	(0.2)	(0.3)
	Current income tax Deferred income tax	4.2	4.2
	- current year	0.8	0.6
	- adjustment in respect of prior year	0.5	-
	Income tax expense	5.5	4.8

The differences between the total income tax expense shown above and the amount calculated by applying the standard rate of Singapore income tax rate to the profit before income tax are as follows:

£ Millions						2015	2014
Profit before tax					25.4		24.3
Tax on profit  at standard Singapore tax rate of 17%					4.3		4.1
Tax incentives					(0.7)		(0.8)
Higher rates of overseas corporation tax					1.7		1.7
Deduction for loss/(gain) on employee share options						(0.1)	0.1
Adjustments in respect of prior year						0.3	(0.3)
Income tax expense						5.5	4.8

4.       Dividends

Amounts recognised as distributions to equity holders in the period

		2015			2014
		Pence per share		£ Millions	Pence per share		£ Millions
Prior year third quarter dividend paid		14.0	*	2.7	13.0		2.5
Prior year final dividend paid		22.0	*	4.2	19.0		3.6
First quarter dividend paid		13.0	^	2.4	12.0	*	2.2
Second quarter dividend paid		14.0	^	2.7	13.0	*	2.5
Total		63.0		12.0	57.0		10.8

* Dividends in respect of 2014 (61.0p)

^ Dividends in respect of 2015 (66.0p)

The third quarter dividend of 15.0 pence per share was paid on 14 January 2016. The proposed final dividend of 24.0 pence per share for the year ended 31 December 2015 is subject to approval by shareholders at the Annual General Meeting scheduled for 1 April 2016 and has not been included as a liability in these financial statements.  It is proposed that the final dividend be paid on 4 April 2016 to members on the register as at 11 March 2016.

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:

						2015	2014
						£ Millions	£ Millions
Earnings
Earnings for the purposes of basic and diluted earnings per share
(profit for the year attributable to equity shareholders of the parent)						19.7	19.4
Earnings for earnings per share						19.7	19.4
Number of shares
Weighted average number of shares for the purposes of basic earnings per share (thousands)						18,997	18,998
Effect of potentially dilutive share options (thousands)						175	196
Weighted average number of shares for the purposes of
dilutive earnings per share (thousands)						19,172	19,194
Earnings per share from operations
Basic						103.7p	102.1p
Diluted						102.8p	101.1p
Diluted adjusted						104.3p	101.1p

6.       Borrowings

The borrowings are repayable as follows:

£ Millions			2015	2014
On demand or within one year			4.0	2.5
In the second year			4.6	-
Total			8.6	2.5

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 2015, the Group had an overdraft of £0.6 million (2014: £2.5 million). In September 2015, the Group renewed its annual working capital facility to US$12.5 million (2014: US$15.0 million). This facility steps down to US$10.0 million from 1 January 2016, then reduces to US$7.5 million from 1 April 2016 and to US$5.0 million from 1 July 2016. The facility is priced at the Bank of Scotland (BOS) base rate plus a margin of 1.5%. 

2.    The Group has entered into a new term loan facility of US$12.0 million (£8.0 million) with BOS on 20 November 2015. The facility is repayable in equal quarterly instalments of US$1.7 million commencing in June 2016 and ending in December 2017. The term loan is priced at LIBOR plus a margin of 0.95% (2014: priced at LIBOR plus a margin of 1.75%).

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 2015.

7.       Deferred consideration

The Group owns 84.0% (2014: 84.0%) of the shares of Powersolve Electronics Limited (“Powersolve”) and had entered into an agreement on 19 December 2011 to purchase the remaining 16.0% of the shares in 2017.

The commitment to purchase the remaining 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 ending 2016.

8.       Principal risks and uncertainties

Board Responsibility

Like many other international businesses the Group is exposed to a number of risks which may have a material effect on its financial performance. The Board has overall responsibility for the management of risk and sets aside time at its meetings to identify and address risks.

Exposure to exchange rate fluctuations

The Group deals in many currencies for both its purchases and sales including US Dollars, Euro and its reporting currency Pounds Sterling. In particular, North America represents an important geographic market for the Group where virtually all the revenues are denominated in US Dollars. The Group also sources components in US Dollars and the Chinese Yuan. The Group therefore has an exposure to foreign currency fluctuations. This could lead to material adverse movements in reported earnings.

Risk mitigation – The Group reviews balance sheet and cash flow currency exposures and where considered appropriate uses forward exchange contracts to hedge these exposures. Any forward contract requires the approval of both the Chief Executive 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 68% 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 businesses financial condition and results of operations. However, for the year ended 31 December 2015, 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% hipot 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 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, the introduction of new products or services by the Group, or by their competitors. In response to a changing competitive environment, the Group may elect from time to time to make certain pricing, service, marketing decisions or acquisitions that could have a short term material adverse effect on the Group’s revenues, results of operations and financial condition.

Risk mitigation – Although not immune from an economic 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 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 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.

9.       Responsibility Statement

The Directors’ confirm to the best of their knowledge and belief 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.

10.     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 2014 or 2015. The financial information for the year ended 31 December 2014 is derived from the XP Power Limited statutory accounts for the year ended 31 December 2014, 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 2015 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 (IFRSs) as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRSs as adopted by the European Union. The Company expects to publish full financial statements that comply with IFRSs as adopted by the European Union later this month.

This announcement was approved by the directors on 22 February 2016.