Interim Results

IFX Power PLC 23 August 2001 IFX Power plc ('IFX' or 'the Group') Interim Results for the six months ended 30 June 2001 IFX, one of the world's leading providers of power supply solutions, today announces its interim results for the six- month period ended 30 June 2001. IFX provides power supply solutions to the electronics industry in Europe and North America and operates predominantly within the mid-tier of the market. The Group was formed by the combination of International Power Sources, Inc. ('IPS') and ForeSight Electronics, Inc. ('ForeSight'), both US companies, and XP PLC ('XP'), a UK company, in mid- 2000. IFX was admitted to the Official List of the UK Listing Authority in July 2000. FINANCIAL HIGHLIGHTS On a pro forma basis (1) Six months ended Six months ended £'000 30 June 2001 30 June 2000 Turnover 50,516 48,601 Gross margin 14,583 13,232 Gross margin % 28.9% 27.2% EBITDA (1) 4,940 6,156 Diluted adjusted earnings per share 14.65p 18.60p Dividend 5p 5p On a statutory basis (2) Turnover 50,516 20,986 Operating profit (3) 4,247 2,573 Profit before tax 3,415 2,394 Diluted earnings per share 10.29p 13.10p Dividend 5p 5p (1) The pro forma financial information is calculated on the basis that IPS, ForeSight and XP were combined on 1 January of each period presented, which is further described in note 2 to the Interim Results. The figures have been adjusted to exclude the amortisation of goodwill and the costs of fundamental re-organisation. (2) The statutory financial information is calculated on the basis required by accounting standards and includes the results of XP throughout the periods presented and the results of ForeSight from the date of acquisition on 15 May 2000 and the results of IPS from the date of acquisition on 5 July 2000. (3) Including Associated Undertakings. Operational Highlights - Continued to build the leading position in the mid-tier of the market by the acquisition of: - certain assets of Powerspec Electronics, Inc. in Northern California for cash consideration of US$3.5 million - the entire issued share capital of Knud Kamuk ApS in Denmark for £464,000 - 25 per cent of the issued share capital of MPI-XP Power AG in Switzerland for £757,000 - Geographic coverage expanded significantly - new offices opened in France, Norway, Sweden, Texas, Colorado, North Carolina and Pennsylvania since the start of the year - Businesses now unified under single global brand - XP - Roll out of the Group's Knowledge Management System completed - Added 14 new sales personnel in Europe and 24 in the US, increasing the total sales force to 112 in June 2001 (74 in June 2000) - Year on year revenues, gross margin and gross margin percentage all up on the prior period - Agreed a £20 million three year revolving credit facility to fund further acquisitions - Merged IPS and ForeSight sales organisations in the US to prevent sales channel conflict and reduce overhead expenses, resulting in a one-off charge of £707,000 - Interim dividend of 5p per share declared Larry Tracey, Chief Executive Officer, commented: 'The underlying markets we serve have lost most of the exceptional growth of last year. The current market slowdown has allowed us to recruit the high calibre sales application engineers we require to accelerate our expansion plans and build the leading position in the mid-tier of the market. We are able to do this whilst remaining profitable. We believe that this controlled expansion will place IFX in a stronger position versus its competitors, many of which are experiencing losses and currently cutting back their operations. The incremental sales resource we have added should allow us to grow revenue in 2002, even if the current market conditions prevail'. Enquiries: IFX Power plc 0118 976 5087 Larry Tracey, Chief Executive Officer James Peters, European Managing Director Duncan Penny, Finance Director www.ifxpower.com Square Mile BSMG Worldwide 020 7601 1000 Kevin Smith or Edward Macquisten IFX Power plc ('IFX' or 'the Group') Interim Results for the six months ended 30 June 2001 REPORT OF THE DIRECTORS The Board presents its report on the performance of the Group for the six months to 30 June 2001. Description of the Group and its markets The Group provides power supply solutions to the electronics industry and operates predominantly within the mid-tier of the market. The mid-tier of the market is highly fragmented and made up of a large number of small to medium sized Original Equipment Manufacturers who source standard and modified standard power supplies from several hundred power supply companies. The Directors believe that this tier accounts for approximately 30 per cent or US$3 billion of the total power supplies market. The Group was formed by the combination of IPS, ForeSight and XP during mid-2000. Trading Performance and Outlook In the face of difficult trading conditions, particularly in the US technology markets, the Group has remained profitable whilst at the same time has been able to aggressively expand its sales force in both the US and Europe. During the period, the sales headcount has increased from 74 at the end of June 2000 to 112 at the end of June 2001, an increase of 51 per cent. The Directors believe that this will allow the Group to grow in 2002 even in the current market conditions and will also allow the Group to gain market share from its competitors, many of which are suffering losses and reducing sales personnel. Geographic Expansion The Group has taken advantage of current market conditions to continue its geographic expansion both by acquisition and organically through opening new sales offices. Offices have been opened in France, Norway, Sweden, and in the US (Texas, Colorado, North Carolina and Pennsylvania) since the start of the year. The Board believes that this continued investment at a time when competitors are cutting their costs will lead to increased revenue in 2002, even if the current market conditions prevail. Acquisitions On 22 June 2001, the Group acquired certain assets including the customer base and employees of Powerspec Electronics Inc. ('Powerspec') for US$3.5 million (approximately £2.5 million). Powerspec is a value added provider of power supply solutions based in Northern California. The operation has been integrated into ForeSight Electronics Inc. ('ForeSight'), the Group's US sales subsidiary. On 30 June 2001, the Group acquired the entire issued share capital of Knud Kamuk ApS and renamed the company Kamuk XP Power ApS ('Kamuk XP'). Kamuk XP provides power supply solutions to its customers and operates in Denmark. Fundamental Re-organisation As the Group expanded its presence within the US market, the representative structure used by IPS and the direct sales force of ForeSight began to duplicate effort. As a result of this, the Board decided to merge IPS and ForeSight to form one US operation incorporating the combined sales force and a single worldwide brand (XP). At the same time, the representative contracts that IPS had entered into were terminated. The Board believes that this will eliminate any duplication of sales effort as the Group expands geographically within the USA and will reduce the overhead cost base of the US organisation by over £1 million on an annualised basis. As a result of this consolidation, IPS's route to market has changed fundamentally. The Group has incurred one-off costs of £707,000 as a result this re- organisation. Financial Performance To assist readers of the interim accounts, we have prepared pro forma information which shows the results on a like for like basis as if IPS, ForeSight and XP had been combined from the beginning of the comparative accounting period (the six months ended 30 June 2000) in addition to the statutory results as required by accounting standards. Like many other businesses operating in the US technology markets, we saw a slowdown relative to the conditions experienced in 2000. Gross margins improved compared to the same period a year ago as the Group started to see the effect of margin enrichment from the introduction of own-branded products. The gain in margin was offset by increased expenses principally associated with increasing the sales resource as noted above and the roll out of the Group's Knowledge Management System, which is now complete. The Knowledge Management System is a critical success factor for product development and managing the Group's sales operations in the highly fragmented mid-tier of the market. The European business showed 19 per cent growth in revenues over the same period last year together with a modest improvement in gross margin percentage. The gains made from absolute gross margin improvement were partially offset by the incremental costs of becoming a public company plus the start- up costs of approximately £1.2 million associated with the new offices and sales resource opened in both the US and Continental Europe. As a consequence of the slowdown in the US, stock levels are higher than we would normally expect. There is a programme to reduce stock to normal levels by the end of the financial year. Profit before tax, goodwill and the costs of the fundamental reorganisation was £4.6 million, down 25 per cent on the same period a year ago. Earnings per share before goodwill and the costs of the fundamental reorganisation on a pro forma basis were 14.7 pence per share, a decrease of 21 per cent on the same period a year ago. Outlook The trading outlook continues to be tough. The slowdown in the US technology markets continues and shows no signs of improvement. We are also seeing a slowdown in the European markets which have historically followed US market trends with a lag of approximately six months in our particular industry. We expect the additional sales resource we have put in place and which we shall continue to augment in the second half of 2001, to generate revenue growth and incremental profits in 2002, even if the current market conditions prevail. Dividend The Group has declared an interim dividend of 5p for the six months ended 30 June 2001 (2000 - 5p). The interim dividend will be paid on 18 October 2001 to shareholders on the register at 7 September 2001. Larry Tracey 23 August 2001 IFX Power plc Pro Forma Consolidated Profit and Loss Account (unaudited) For the six months ended 30 June 2001 £'000 Note Six months Six months ended ended 30 June 2001 30 June 2000 Turnover 3 50,516 48,601 Cost of sales (35,933) (35,369) ________ ________ Gross profit 14,583 13,232 ________ ________ Operating expenses (9,643) (7,076) Earnings before interest, tax ________ ________ and depreciation 4,940 6,156 ________ ________ Amortisation of goodwill (473) (445) Depreciation (262) (168) ________ ________ Group Operating profit 4,205 5,543 Share of associate's operating profit 42 - ________ ________ Total Operating Profit 4,247 5,543 ________ ________ Costs of fundamental re-organisation (707) - Other interest receivable and similar income 52 282 Interest payable and similar charge (177) (105) ________ ________ Profit on ordinary activities 3,415 5,720 before taxation 3 ________ ________ Tax on profit on ordinary activities 4 (1,329) (2,309) ________ ________ Profit on ordinary activities after taxation 2,086 3,411 ________ ________ Minority interests 44 - ________ ________ Profit for the period attribute to IFX shareholders 2,130 3,411 ________ ________ Dividends payable 5 (1,020) (1,036) ________ ________ Retained profit for the period 1,110 2,375 ________ ________ Basic earnings per share 6 10.32p 16.46p Diluted earnings per share 6 10.29p 16.46p Earnings per share adjusted for goodwill and costs of fundamental re-organisation 6 14.71p 18.60p Diluted earnings per share adjusted for goodwill and costs of fundamental re- organisation 6 14.65p 18.60p IFX Power plc Statutory Consolidated Profit and Loss Account (unaudited) For the six months ended 30 June 2001 £'000 Note Six months Six months ended ended 30 June 2001 30 June 2000 Turnover 3 Continuing operations 50,399 9,116 Acquisitions 117 11,870 ________ ________ Total Turnover 50,516 20,986 Cost of sales (35,933) (15,132) ________ ________ 14,583 5,854 Gross profit ________ ________ Selling and distribution (8,045) (2,685) Administrative expenses (1,937) (574) Amortisation of goodwill (473) (37) Other operating income 77 15 Operating profit Continuing operations 4,177 1,463 Acquisitions 28 1,110 ________ ________ Group Operating Profit 4,205 2,573 Share of associate's operating profit 42 - ________ ________ Total Operating Profit 4,247 2,573 ________ ________ Costs of fundamental re-organisation (707) - Other interest receivable and similar income 52 47 Interest payable and similar charges (177) (226) ________ ________ Profit on ordinary activities activities before taxation 3 3,415 2,394 ________ ________ Tax on profit on ordinary activities 4 (1,329) (883) ________ ________ Profit on ordinary activities after taxation 2,086 1,511 ________ ________ Minority interests 44 - Profit for the period attributable to IFX shareholders 2,130 1,511 Dividends payable 5 (1,020) (1,036) ________ ________ Retained profit for the period 1,110 475 ________ ________ Basic earnings per share 6 10.32p 13.10p Diluted earnings per share 6 10.29p 13.10p Earnings per share adjusted for goodwill and fundamental re-organisation 6 14.71p 13.43p Diluted earnings per share adjusted for goodwill and fundamental re-organisation 6 14.65p 13.43p IFX Power plc Statutory Consolidated Balance Sheet (unaudited) At 30 June 2001 £'000 At 30 June At 31 December At 30 June 2001 2000 2000 Fixed assets Intangible assets 20,100 18,237 5,950 Tangible assets 2,580 1,420 1,133 Own shares 467 534 1,380 Investments 1,282 158 235 _______ _______ _______ Total fixed assets 24,429 20,349 8,698 _______ _______ _______ Current assets Stock 15,645 13,447 9,217 Debtors 15,798 17,557 15,679 Cash at bank and in hand 2,156 5,455 4,475 _______ _______ _______ Total current assets 33,599 36,459 29,371 _______ _______ _______ Creditors: amounts falling due within one year (23,465) (24,010) (35,337) Net current asset/(liabilities) 10,134 12,449 (5,965) _______ _______ _______ Total assets less current liabilities 34,563 32,798 2,733 _______ _______ _______ Creditors: amounts falling due after more than one year - - - Provisions for liabilities and charges (42) - (63) _______ ________ _______ Net assets 34,521 32,798 2,670 _______ ________ _______ Capital and reserves Called up share capital 211 211 156 Share premium account 26,942 26,942 - Merger reserve 250 250 250 Profit and loss account 7,162 5,395 2,264 Total equity shareholders' funds 34,565 32,798 2,670 Minority interests (44) - - _______ _______ _______ Total capital and reserves 34,521 32,798 2,670 _______ _______ _______ IFX Power plc Statutory Consolidated Cash Flow for the six months ended 30 June 2001 (unaudited) £'000 Note Six months Six months ended ended 30 June 2001 30 June 2000 Net cash flow from operating activities 7 2,226 2,767 Returns on investments and servicing of finance Interest paid (177) (226) Interest received 52 47 Net cash outflow from returns on investments and servicing of finance (125) (179) Taxation Tax paid (1,765) (21) Capital expenditure and financial investment Purchase of tangible fixed assets (1,395) (139) Sale of tangible fixed assets/investments 86 376 Net cash (outflow)/inflow from capital expenditure and financial investment (1,309) 237 ______________________________________________________________________________ Free cash flow (973) 2,804 ______________________________________________________________________________ Acquisitions and disposals Purchase of subsidiaries and associated undertakings (6,944) (11,955) Equity dividends paid (1,445) - _______________________ Cash (outflow)/inflow from financing (9,362) 1,219 _______________________ Financing New loans - 11,750 Loan repayments - (1,380) Net cash flow from financing - 10,370 _______________________ (Decrease)/ increase in cash 8 (9,362) 1,219 _______________________ Notes to the Interim Results for the six months ended 30 June 2001 1. Basis of preparation Accounting convention The financial statements have been prepared under the historical cost convention. Basis of consolidation On 11 May 2000 XP acquired the entire issued share capital of Forx Inc. ('Forx') a company incorporated in the USA in a share for share exchange. On 15 May 2000 Forx acquired the entire issued share capital of ForeSight for cash. On 12 June 2000 IFX acquired the entire issued share capital of XP in a share for share exchange. On 22 June 2001, the Group acquired certain assets of Powerspec for cash. On 30 June 2001, the Group acquired the entire issued share capital of Knud Kamuk for cash. The group has accounted for the acquisition of XP and Forx using the merger method of accounting and all other acquisitions have been accounted for using the acquisition method of accounting in accordance with Financial Reporting Standard 6, 'Acquisitions and Mergers'. The pro forma consolidated financial information has also been prepared on this basis. Goodwill and intangible fixed assets For acquisitions of a business, where the acquisition method of accounting is adopted, purchased goodwill is capitalised in the year in which it arises and amortised over its estimated useful life up to a maximum of 20 years. The directors regard 20 years as a reasonable maximum for the estimated useful life of goodwill. Capitalised purchased goodwill in respect of subsidiaries is included within intangible fixed assets. Tangible fixed assets Depreciation is provided on cost in equal annual instalments over the estimated useful lives of the assets. The rates of depreciation are as follows: Plant and machinery - 15-33% Motor vehicles - 25% Office equipment - 15-33% Leasehold improvements - 10% Long leasehold land and buildings - Term of the lease Investments Investments held as fixed assets are stated at cost less provision for impairment if applicable. Stocks Stocks are stated at the lower of cost and net realisable value. Cost represents materials and appropriate overheads. Deferred taxation Deferred taxation is provided at the anticipated tax rates on differences arising from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements to the extent that it is probable that a liability or asset will crystallise in the future. Foreign exchange Transactions denominated in foreign currencies are translated at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates ruling at that date. These translation differences are dealt with in the profit and loss account. The results of overseas subsidiary undertakings are translated in sterling at average rates for the period. The exchange differences arising as a result of restating retained profits to closing rates are dealt with as a movement on reserves. Leases Rental costs under operating leases are charged to the profit and loss account in equal instalments over the period of the leases. 2. Basis of pro forma financial information The pro forma financial information for the six months ended 30 June 2001 and 2000 have been determined as if the trading companies IPS, ForeSight and XP were combined from 1 January 2000. The figures have been extracted from the unaudited financial statements of the companies concerned. The pro forma adjustments reflected in the unaudited pro forma consolidated profit and loss accounts include assumptions made by the directors that they consider to be reasonable and which are consistent with the pro forma information presented in the IFX Prospectus dated 27 June 2000. 3. Segmental analysis The Group operates substantially in one class of business, the provision of power supply solutions to the electronics industry. Analysis of total Group operating profit, net assets, pro forma turnover and pro forma total Group operating profit by geographical region is set out below. Segmental analysis pro forma basis £'000 Pro forma basis ______________________________ Six months Six months ended ended 30 June 2001 30 June 2000 Turnover Europe 11,016 9,116 United States 39,500 39,485 _____________ ____________ Total turnover 50,516 48,601 _____________ ____________ Group operating profit (before goodwill) Europe 1,463 1,493 United States 3,257 4,495 _____________ ____________ Total Group operating profit (before goodwill) 4,720 5,988 _____________ ____________ Net interest (payable)/receivable (125) 177 _____________ ____________ Total Group profit before tax, goodwill goodwill and exceptional items 4,595 6,165 _____________ ____________ Amortisation of goodwill (473) (445) Costs of fundamental re-organisation (707) - _____________ ____________ Profit on ordinary activities before taxation 3,415 5,720 _____________ ____________ Segmental analysis statutory basis £'000 Statutory basis ________________________________ Six months to Six months to 30 June 2001 30 June 2000 Turnover Europe 11,016 9,116 United States 39,500 11,870 _____________ _____________ Total turnover 50,516 20,986 _____________ _____________ Group operating profit (before goodwill) Europe 1,463 1,500 United States 3,257 1,110 _____________ _____________ Total Group operating profit (before goodwill) 4,720 2,610 _____________ _____________ Net interest (payable)/receivable (125) (179) _____________ _____________ Total Group profit before tax, goodwill and exceptional item 4,595 2,431 _____________ _____________ Amortisation of goodwill (473) (37) Exceptional item (707) - _____________ _____________ Profit on ordinary activities before taxation 3,415 2,394 _____________ _____________ At 30 June At 30 June 2001 2000 Net assets Europe 3,555 1,531 United States 30,966 1,139 _____________ ____________ Total net assets 34,521 2,670 _____________ ____________ 4. Taxation £'000's Six months Six months ended ended 30 June 2001 30 June 2000 Europe 386 435 United States 943 448 ____________ _____________ Total taxation 1,329 883 ____________ _____________ 5. Equity dividends An interim dividend of 5p (2000 5p) per share will be paid on 18 October 2001 to shareholders on the register of members on 7 September 2001. 6. Earnings per share £'000's Six months to Six months to 30 June 2000 30 June 2001 Pro forma basis ___________________________________________ Profit attributable to IFX shareholders' for the financial period for basic earnings per share 2,130 3,411 Amortisation of goodwill 473 445 Cost of fundamental re-organisation 707 - Tax credit on cost of fundamental re-organisation (276) - Earnings for adjusted earnings per share 3,034 3,856 Weighted average number of shares (thousands) (basic) 20,630 20,729 Weighted average number of shares (thousands) (fully diluted) 20,706 20,729 Statutory basis ___________________________________________ Profit attributable to IFX shareholders' for the financial period for basic earnings per share 2,130 1,511 Amortisation of goodwill 473 37 Cost of fundamental re-organisation 707 - Tax credit on cost of fundamental re-organisation (276) - Earnings for adjusted earnings per share 3,034 1,548 Weighted average number of shares (thousands) (basic) 20,630 11,530 Weighted average number of shares (thousands) (basic) 20,706 11,530 7. Reconciliation of operating profit to net cash inflow from operating activities £'000's Six months Six months ended ended 30 June 2001 30 June 2000 Operating profit 4,205 2,573 Costs of fundamental reorganistion (707) - Depreciation and amortisation 735 164 (Increase) in stocks (1,099) (812) Decrease/(increase) in debtors 2,237 (1,544) (Decrease)/increase in creditors (3,145) 2,386 ____________ ____________ Net cash inflow from operating activities 2,226 2,767 ____________ ____________ 8. Reconciliation of net funds £'000's Six months Six months ended ended 30 June 2001 30 June 2000 Net cash/(overdraft) at 1 Januar 1,919 (85) Cash acquired with subsidiary undertakings 156 3,289 Net overdrafts acquired with subsidiary undertakings - (2,291) (Decrease)/increase in cash per cash flow statement (9,362) 1,219 _____________ ___________ Net (debt)/funds at 30 June (7,287) 2,132 _____________ ___________ Represented by Cash at bank and in hand 2,156 4,475 Overdrafts (9,443) (2,343) _____________ ___________ Net (debt)/funds at 30 June (7,287) 2,132 _____________ ___________ 9. Borrowings In August 2001 the Group agreed a working capital facility of £10 million and a revolving credit facility for acquisitions of £20 million committed for three years from the Bank of Scotland. 10. Acquisitions The Group acquired the entire share capital of Knud Kamuk ApS ('Knud Kamuk') and certain operating assets of Powerspec Inc. ('Powerspec'). The Group also acquired a 25% stake in MPI at a cost of £757,000 generating goodwill of £495,000. In addition to those acquisitions described above, the Group also increased its stake in Powersolve Electronics Limited from 29.4 per cent to 39.4 per cent, at a total cost of £250,000. Included in the Statement of Consolidated Cash Flows is £2,712,000 relating to the deferred consideration paid for International Power Sources Inc. £'000's Powerspec Knud Kamuk Balance sheets at acquisition Tangible fixed assets 55 10 Cash - 156 Current assets 560 120 _________ _________ Net assets acquired 615 286 _________ _________ Goodwill 1,874 178 _________ _________ Purchase consideration 2,489 464 _________ _________ Satisfied by: Cash consideration 2,489 464 _________ _________ 11. Costs of fundamental re-organisation On 11 June 2001, the Group announced that its two divisions in the US, IPS and ForeSight, were to be merged to form one US operation incorporating the combined sales forces and a single worldwide brand (XP). At the same time, various representative contracts which IPS had entered into were terminated. This change fundamentally alters IPS's route to market and eliminates any duplication of sales effort as the Group expands within the US. The costs associated with the re- organisation are £707,000 and principally represent the severance package for Stuart Amos and the costs of terminating the representative contracts and other personnel. 12. Interim Statement The interim statements on pages 1 to 13 were approved by the board of directors on 22 August 2001 and signed on their behalf.

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