Annual Financial Report
25 February 2013
XP Power Limited
("XP" or "the Group")
Annual Results for the year ended 31 December 2012
XP, 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 2012.
Highlights
Year ended Year ended
31 December 31 December Change
2012 2011
Bookings £96.6m £98.3m -2%
Revenue £93.9m £103.6m -9%
Gross margin 47.8% 49.1% -130 bps
Adjusted profit before tax £20.2m £24.3m -17%
Adjusted profit after tax £15.5m £20.3m -24%
Diluted earnings per share adjusted1 81.3p 106.4p -24%
Operating cash flow £23.6m £16.2m +46%
Net debt £10.6m £18.6m -43%
Final dividend per share 17.0p 15.0p
Total dividend per share 50.0p 45.0p +11%
Gross margins reduced to 47.8% (2011: 49.1%) due to short term impact of
start-up costs of Vietnam facility, low factory loading in the first quarter
and costs of bringing third-party manufacturing in-house
XP Power's own design revenues increased to a record 62% of total revenues
(2011: 57% of total revenues) despite challenging market conditions throughout
the year
Sales of high efficiency ("green") products increased by 62% to £8.1 million,
representing 9% of revenue (2011: £5.0 million or 5% of revenue)
Chinese manufacturing facility continues to successfully secure new approved
vendor agreements from blue chip customers
Vietnam magnetics facility operational since March 2012 and producing high
quality product
100% of own design products now manufactured in-house, ensuring full control of
the production process and expected to enhance margins in FY2013
Resilient earnings and continued strong cash flows provide basis for an
increased total dividend of 50.0p per share for the year up 11% on the prior
year
Successful repositioning as a designer and manufacturer leaves the Group well
positioned to continue to take market share
Larry Tracey, Chairman, commented:
"Against a backdrop of continuing macro-economic uncertainty, global capital
goods markets remain subdued and we are cautious on the revenue outlook, with
orders received to date indicating flat or only modestly increased revenue for
2013.
While striking this note of caution on current levels of capital equipment
investment in our customers' end user markets, we believe XP remains well
placed for the year ahead. The manufacturing initiatives implemented in 2012
should deliver gross margin improvements this year and we believe that our
strategy of targeting blue chip customers with strong leadership positions in
their respective markets will result in further successful factory audits and
customer wins in 2013.
We remain confident that our well-established strategy will underpin our
ability to take further market share and produce the strong cash flows
necessary to maintain a progressive attitude to the dividend."
Enquiries:
XP Power (25 February 2013)
+44 (0)207638 9571
Duncan Penny, Chief Executive
+44 (0)7776 178018
Jonathan Rhodes, Finance Director
+44 (0)7500 944614
Citigate Dewe Rogerson
+44 (0)20 7638 9571
Kevin Smith/Jos Bieneman
XP 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 typically designs in power control solutions into the end products of major
blue chip OEMs, with a focus on the industrial (circa 46% of sales), healthcare
(circa 28% sales) and technology (circa 26% of sales) sectors. Once designed
into a program, XP 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 has invested in research and development and its own manufacturing facility
in China, 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 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
Overview
Despite challenging market conditions for capital equipment, the successful
execution of our well-established strategy of moving up the value chain in to
design and manufacture, delivered a solid result for the year. Earnings per
share of 81.3p for 2012 (2011: 106.4p) demonstrated the resilience of our
business model. These earnings, combined with strong cash generation, allowed
us to increase the dividend by 11% to 50 pence per share (2011: 45 pence per
share) while at the same time reducing our net debt. The compound average
growth rate of earnings per share has been 21% over the last 5 years and 28%
over the last 10 years.
Financial
Total orders decreased by 2% to £96.6 million (2011: £98.3 million) in the
year. Total revenues decreased by 9% to £93.9 million (2011: £103.6 million).
Revenues from XP Power's own designed product were £57.6 million (2011: £59.2
million) or 62% of revenue (2011: 57%). As expected, gross margin declined
slightly to 47.8% (2011: 49.1%) due to lower factory loading in the first
quarter of 2012 and the start-up costs of our new Vietnamese manufacturing
facility. Despite the decline in gross margin, operating profit was £21.0
million (2011: £25.3 million) or 22.4% of revenue (2011: 24.4%).
Net debt at the year-end was £10.6 million compared to £18.6 million at the end
of 2011. Operating cash flow was £23.6 million (2011: £16.2 million)
representing 112% of operating income.
Strategic Progress
In mid-2009 the Group achieved a key strategic objective when it began
production at its full scale manufacturing facility in China. Our second
manufacturing facility in Ho Chi Minh City, Vietnam commenced production of
magnetic components during the first quarter of 2012, significantly enhancing
the value proposition we offer our customers. Combined, these state-of-the-art
factories dramatically enhance the Group's ability to secure preferred supplier
status with larger customers and increase the proportion of its revenues which
come from its higher margin, own-designed products.
Dividend
Our continued strong financial performance, strong cash flows and confidence in
the Group's long term prospects have enabled us to consistently increase
dividends.
In line with our progressive dividend policy, a final dividend of 17 pence per
share for the fourth quarter of 2012 is proposed. This dividend will be payable
to members on the register on 15 March 2013 and will be paid on 10 April 2013.
When combined with the interim dividends for the previous quarters, the final
proposed dividend results in a total dividend of 50 pence per share for the
year (2011: 45 pence); an increase of 11%. The compound average growth rate of
our dividend has been 20.1% over the last 5 years and 15.3% over the last 10
years.
Board Changes
On 18 December 2012 the Group announced that Michael Hafferty, who had served
as a Non-Executive Director since April 2007, would retire as a Non-Executive
Director with effect from 31 December 2012.
On behalf of the Board, I would like to thank Michael for his contribution to
XP Power over many years and wish him well for the future.
Outlook
Against a backdrop of continuing macro-economic uncertainty, global capital
goods markets remain subdued and we are cautious on the revenue outlook, with
orders received to date indicating flat or only modestly increased revenue for
2013.
While striking this note of caution on current levels of capital equipment
investment in our customers' end user markets, we believe XP remains well
placed for the year ahead. The manufacturing initiatives implemented in 2012
should deliver gross margin improvements this year and we believe that our
strategy of targeting blue chip customers with strong leadership positions in
their respective markets will result in further successful factory audits and
customer wins in 2013.
We remain confident that our well-established strategy will underpin our
ability to take further market share and produce the strong cash flows
necessary to maintain a progressive attitude to the dividend.
Larry Tracey
Chairman
Chief Executive's Review
Overview
2012 was a challenging but significant year for XP Power. Macro-economic
concerns continued to weigh on the capital equipment markets in which our
customers operate and there seems little sign of improvement as we enter into
2013.
Notwithstanding the more uncertain economic backdrop, we continued to invest
for the future, successfully implementing two key manufacturing initiatives
during the year. Our new magnetics facility in Vietnam is now operational and
producing excellent quality product. We have also brought in-house all the
manufacture of our own-design products, which had previously been produced by a
third party contract manufacturer. The Group now manufactures 100% of the
products developed in its design centres, giving it total control over
production and enhancing margins. Inevitably, the Vietnam start-up costs and
the engineering costs of bringing our own-design product in house, in
combination with low factory loading in the first quarter of 2012, did have
some short term impact on our gross margins for the year. However, these
factors are now behind us and should allow an increase in gross margins in
2013.
Despite the factors discussed above the Group continued to produce class
leading operating income of £21.0 million and excellent free cash flow of £20.9
million enabling a reduction in net debt from £18.6 million at the beginning of
2012 to £10.6 million at the year-end.
The Group continued to make excellent progress in its strategy of increasing
penetration of its key customer accounts. We expect that this continued focus
on customers with leadership positions in their respective markets will enable
us to continue to gain market share.
Our broad and up-to-date portfolio of class leading products, many of which are
highly efficient, combined with excellent engineering support, and the assured
quality and reliability facilitated by our move into manufacturing, is
increasingly making us the power converter provider of choice for many large
customers.
A record 62% of our revenues came from our own designed products in 2012 (2011:
57%) and 93% of our total revenues now carry the XP Power brand (2011: 90%).
Own designed products generate higher margins, and give XP Power the capability
to design tailor-made power control solutions for specific customer orders.
Markets
XP Power supplies power control solutions to Original Equipment Manufacturers
("OEMs") of capital goods, who themselves supply the healthcare, technology and
industrial markets with high value products. The increasing importance of
energy efficiency, for both environmental and economic reasons, the necessity
for ever smaller products, the rate of technological change and the increasing
proliferation of electronic equipment, all contribute to underpin the strength
of medium term demand for XP Power's power conversion products.
The worldwide available market for XP Power's products was estimated to be £1.5
billion per annum in 2011. Early indications suggest that our markets may have
declined by approximately 12% in 2012.We estimate XP Power's global market
share to be around 7% in 2012. Across North America and Europe, XP Power
currently has around 10% and 12% respectively of our available market, while
across Asia our share is estimated to be 1%. This illustrates the significant
commercial opportunities that remain open to XP Power, and the Board is
confident that the Group's competitive advantages over many of its peers will
allow it to take further share in each of its key markets.
The sector split of 2012 revenues was as follows: Industrial declined 7% to £
43.8 million (2011: £46.9 million), Healthcare declined 2% to £26.0million
(2011: £26.6 million) and Technology declined 20% to £24.1 million (2011: £30.1
million). The decline in the Technology sector was primarily attributable to
weak demand from our customers in the semiconductor equipment sector.
According to geography our 2012 revenues were split: Asia down 16% to £7.7
million (2011: £9.2 million), Europe down 10% to £40.8 million (2011: £45.4
million) and North America down 7% to £45.4 million (2011: £49.0 million).
Our major blue chip customers require market leading, highly reliable
products. We maintained a consistent investment in research and development
throughout the year and our product pipeline remains the broadest and freshest
in the industry. The attractions of this continually evolving portfolio of
market leading products enabled the Group to win a number of new customers in
the year, underpinning revenue growth in future years.
Increasingly, the design and manufacturing process of major international OEMs
takes place across different continents, with these blue chip companies
demanding global support. In response, XP Power has established an
international network of offices which offers the necessary customer support
across technical sales, design engineering, logistics and operations. This
network gives XP Power a strong competitive advantage over both its smaller
competitors, who do not have the scale and geographic reach to serve global
customers, and its larger competitors, who often lack the operational
flexibility to provide excellent service and speed. We believe that this
balance is key to our success in winning new contracts and offers XP Power the
opportunity to further increase its market share.
International Network
XP Power's mix of quick response capability and global reach is a major
competitive advantage. XP Power maintained a network of 27 sales offices
spread over North America, Europe and Asia, with a further 16 distributors,
supporting its smaller customers, during the year. The size and scope of this
network is kept under continuous review to ensure the business remains best
placed to capitalise on growth opportunities in each of its geographies.
XP Power has the largest, most technically trained sales force in the
industry. Our detailed in-house training programme demands that the sales
force pass numerous technology and customer service modules, making them a
"value add" partner to our customers' product development teams. Management
believes that this gives the business a competitive edge compared to many
within its peer group.
Our North American network consists of 17 sales offices and an extensive
engineering services function, based in Northern California. This network
allows XP Power to provide its major customers with local face to face support
and rapid response times.
In Europe, the XP Power network consists of eight sales offices and a further
nine distributor offices, providing the same level of customer support as North
America. In addition, XP Power has engineering services centres in Germany and
the UK.
The Asian sales activities are run from Shanghai and Singapore, where we also
manage a network of seven distributors serving the region. In the medium term
we expect revenues derived from Asia to be an increasing proportion of XP
Power's worldwide revenues.
Market Leading Technology
A long term commitment to invest in research and development of new products
has been the cornerstone of XP Power's growth strategy. We believe that we now
have the broadest, most up to date portfolio of products in the industry, many
with class leading efficiency.
Research and development gross spend was £5.3 million in 2012 (2011: £5.3
million), and nineteen new product families were introduced in the year. As
previously reported, having established such a broad portfolio, the rate of new
product introductions has slowed with more of our engineering resource now
focused on modifications to existing products to meet the precise requirements
of individual customers. Over half of the products we sell have been modified
from the original, standard version.
Manufacturing Capabilities
Our target customers demand extremely high levels of quality control to ensure
the reliability and safety for the life of their equipment. Complete control of
manufacturing is therefore critical to ensure strict management of the
production processes and components that go into our products, and also gives
us opportunities to reduce our product costs. The capability and performance
of our Kunshan facility, which was commissioned in 2009, has been instrumental
in winning new programs and customers.
In 2012 we have achieved a further major milestone with the commencement of
production at our new magnetics facility in Ho Chi Minh City, Vietnam. The
Vietnam facility gives us the capability to produce our own magnetics
components, which not only enhances our value proposition to our customers - in
terms of control of the manufacturing process, flexibility and lead times - but
also provides a second geographical base to mitigate the effect of rapidly
increasing costs in China.
The new Vietnam facility commenced production in the first quarter of 2012 and
has been producing excellent quality magnetics. The start-up losses of this
facility were approximately £0.5 million during the year and we expect the
facility to be in a breakeven position by the end of 2013.
We also embarked on an additional major initiative during 2012 which was to
bring all of our own-design products assembled by contract manufacture in
house. This was a major engineering challenge for our manufacturing teams and
research and development centres. Nearly 200 products have been transferred
into our Kunshan facility. While this activity caused a drag on gross margins
in 2012, it is expected to be gross margin enhancing in 2013 as factory
utilisation improves. Full control of manufacturing will also allow us to offer
more attractive lead times to our customers. We are currently carrying a buffer
inventory of approximately £1.0 million to support our customers during this
transition stage.
The Environment and Sustainability
In 2009 we established an Environmental Committee that immediately set the goal
of making XP Power the leader in environmental issues within our industry. Much
has been achieved since 2009 and our progress will be set out in detail in the
Environmental Report contained within our 2012 Annual Report.
Our new Vietnamese magnetics facility is the most environmentally friendly
power converter manufacturing facility in the world and we incorporated green
technologies into the plant from the outset. The facility meets the Gold Plus
rating of the BCA Green Mark requirements which are the leading standards set
by the Singapore Building and Construction Authority for non-residential
buildings in tropical climates. We are proud that this is not only the most
environmentally friendly facility in our industry but is the first BCA Green
Mark certified industrial facility in Vietnam.
The biggest impact XP Power can have on the environment is to promote its high
efficiency green products, which consume and waste less energy on an on-going
basis. Revenues from these green products continue to increase. In 2012 we
shipped £8.1 million of these green products or 9% of revenue, compared with £
5.0 million or 5% of revenue in 2011.
Investing in Customer Support
In a competitive market place, excellent customer support and service is
critical. XP Power has developed a network of relationship managers and sales
engineers to manage long-term customer relationships across three continents.
The Group has worked hard to build a sales culture that can successfully manage
complicated relationships and has developed sophisticated proprietary customer
relationship management tools to manage the sales process effectively.
Management regards these tools and their method of utilisation as a significant
source of competitive advantage over the Group's larger competitors.
Outlook
Design wins in 2012 have continued to be positive and we are pleased with the
further headway that has been made in achieving approved or preferred supplier
status at new key accounts. However, the continued poor macroeconomic backdrop
is presenting a challenging environment for capital investment as we enter 2013
and our customers remain cautious in terms of placing orders.
As a supplier to manufacturers of capital goods, we cannot expect to be immune
from the effects of weak global end-markets, nevertheless, XP's successful
repositioning as a designer and manufacturer leaves the Group well positioned
to respond to these more difficult markets and to continue to take market share
while sustaining margins.
We remain confident in our strategy of our targeting customers with strong
leadership positions in their respective markets. These blue chip customers
find the Group's broad, up to date product offering, and manufacturing
capabilities extremely attractive, especially since they are supported with
very high service levels. We consider that these competitive strengths place XP
Power in a strong position to capitalise on its medium term growth
ambitions.
Duncan Penny
Chief Executive
XP Power Limited
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2012
£ Millions Note 2012 2011
Revenue 2 93.9 103.6
Cost of sales (49.0) (52.7)
Gross profit 44.9 50.9
Expenses
Distribution and marketing (19.1) (20.7)
Administrative (0.7) (0.7)
Research and development (4.1) (4.2)
Operating profit 21.0 25.3
Finance cost (0.8) (1.0)
Profit before income tax 2 20.2 24.3
Income tax expense 3 (4.5) (3.6)
Profit for the year 15.7 20.7
Profit attributable to:
Owners of the parent 15.5 20.3
Non-controlling interest 0.2 0.4
Profit for the year 15.7 20.7
Earnings per share attributable to owners of the parent (pence per share)
- Basic 5 81.7 107.1
- Diluted 5 81.3 106.4
XP Power Limited
Consolidated Balance Sheet
For the year ended 31 December 2012
£ Millions Note 2012 2011
ASSETS
Current Assets
Cash and cash equivalents 4.1 6.3
Inventories 19.8 22.0
Trade receivables 14.2 16.0
Other current assets 1.2 2.6
Total current assets 39.3 46.9
Non-current assets
Goodwill 30.5 31.3
Intangible assets 7.6 6.4
Property, plant and equipment 13.2 12.9
Investment in associates - 0.1
Deferred income tax assets 0.3 0.4
ESOP loan to employees 1.2 1.6
Total non-current assets 52.8 52.7
Total assets 92.1 99.6
LIABILITIES
Current liabilities
Current income tax liabilities 1.6 1.3
Trade and other payables 11.1 11.4
Provision for deferred contingent consideration 7 - 1.9
Borrowings 6 7.3 13.4
Derivative financial instruments 0.2 0.2
Total current liabilities 20.2 28.2
Non-current liabilities
Provision for deferred contingent consideration 7 1.5 2.1
Borrowings 6 7.4 11.5
Deferred income tax liabilities 1.7 2.0
Total non-current liabilities 10.6 15.6
Total liabilities 30.8 43.8
NET ASSETS 61.3 55.8
EQUITY
Equity attributable to owners of the parent
Share capital 27.2 27.2
Merger reserve 0.2 0.2
Treasury shares (1.2) (1.0)
Hedging reserve (0.2) -
Translation reserve (7.7) (7.1)
Retained earnings 42.8 36.3
61.1 55.6
Non-controlling interests 0.2 0.2
TOTAL EQUITY 61.3 55.8
XP Power Limited
Consolidated Statement of Cash Flows
For the year ended 31 December 2012
£ Millions 2012 2011
Cash flows from operating activities
Profit for the year 15.7 20.7
Adjustments for
- Income tax expense 4.5 3.6
- Amortisation and depreciation 2.3 2.2
- Finance cost 0.8 1.0
- (Gain)/Loss on fair valuation of
derivative financial instruments (0.1) 0.1
- Unrealised currency translation
losses 0.5 0.2
Change in the working capital
- Inventories 2.2 (1.0)
- Trade and other receivables 3.2 (1.5)
- Trade and other payables (0.3) (4.1)
- Provision for liabilities and
other charges (0.9) -
Income tax paid (4.3) (5.0)
Net cash generated from operating
activities 23.6 16.2
Cash flows from investing activities
Acquisition of a subsidiary, net of
cash acquired (0.1) (0.1)
Purchases and construction of
property, plant and equipment (2.5) (5.7)
Research and development expenditure
capitalised (2.2) (2.0)
Proceeds from disposal of property,
plant and equipment 0.4 -
ESOP loans repaid 0.5 0.8
Payment of deferred consideration (1.9) -
Net cash used in investing activities (5.8) (7.0)
Cash flows from financing activities
Repayment of borrowings (4.2) (4.1)
Net purchase of treasury shares by
ESOP (0.5) (0.8)
Interest paid (0.5) (0.8)
Dividend paid to equity holders of
the Company (8.9) (7.4)
Dividend paid to non-controlling
interests (0.2) (0.4)
Net cash used in financing activities (14.3) (13.5)
Net increase/(decrease) in cash and
cash equivalents 3.5 (4.3)
Cash and cash equivalents at
beginning of financial year (3.3) 1.0
Effects of currency translation on
cash and cash equivalents 0.3 -
Cash and cash equivalents at end of
financial year 0.5 (3.3)
Notes to the Annual Results Statement
For the year ended 31 December 2012
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 2012 2011
Revenue
Europe 40.8 45.4
North America 45.4 49.0
Asia 7.7 9.2
Total Revenue 93.9 103.6
Segment result
Europe 7.4 9.8
North America 11.2 12.3
Asia 0.9 2.5
Segment result 19.5 24.6
Research and development costs (4.1) (4.2)
Finance income and cost (0.8) (1.0)
Corporate recovery from operating segment 5.6 4.9
Profit before tax 20.2 24.3
Tax (4.5) (3.6)
Total Profit 15.7 20.7
Analysis by end market
The revenue by end market was as follows:
Year to 31 December 2012 Year to 31 December 2011
North North
£ Millions Europe America Asia Total Europe America Asia Total
Technology 10.4 9.9 3.8 24.1 11.6 12.5 6.0 30.1
Industrial 22.1 18.9 2.8 43.8 24.3 20.7 1.9 46.9
Healthcare 8.3 16.6 1.1 26.0 9.5 15.8 1.3 26.6
Total 40.8 45.4 7.7 93.9 45.4 49.0 9.2 103.6
3. Income taxes
£ Millions 2012 2011
Singapore corporation tax
- current 1.0 1.3
year
- adjustment in respect of prior year - 0.1
Overseas corporation tax
- current year 3.1 2.9
- adjustment in respect of prior year 0.6 (1.3)
Total current tax 4.7 3.0
Deferred income tax
- current year 0.2 1.3
- adjustment in respect of prior year (0.4) (0.7)
Tax charge for the year 4.5 3.6
The differences between the total income tax expense shown above and the amount
calculated by applying the standard rate of Singapore corporate tax to the
profit before tax are as follows:
£ Millions 2012 2011
Profit before tax 20.2 24.3
Tax on profit at standard Singapore tax rate of 17% 3.4 4.1
Tax incentives (0.7) (0.7)
Higher rates of overseas corporation tax 1.6 2.4
Non-deductible expenditure 0.1 -
Deduction for gains on employee share options (0.1) (0.3)
Adjustments in respect of prior year 0.2 (1.9)
Tax charge for the year 4.5 3.6
4. Dividends
Amounts recognised as distributions to equity holders in the period
2012 2011
Pence Pence
per £ per £
share Millions share Millions
Prior year third quarter dividend paid 11.0 * 2.1 8.0 1.5
Prior year final dividend paid 15.0 * 2.8 12.0 2.3
First quarter dividend paid 10.0 ^ 1.9 9.0 * 1.7
Second quarter dividend paid 11.0 ^ 2.1 10.0 * 1.9
Total 47.0 8.9 39.0 7.4
* Dividends in respect of 2011 (45.0p)
^ Dividends in respect of 2012 (50.0p)
A dividend of 12.0p per share was paid in respect of the Third Quarter of 2012
on 10 January 2013.
The proposed final dividend for 2012 of 17.0 pence per share is subject to
approval by shareholders at the Annual General Meeting scheduled for 8 April
2013 and has not been included as a liability in these financial statements.
It is proposed that the final dividend be paid on 10 April 2013 to members on
the register as at 15 March 2013.
5. Earnings per share
The calculations of the basic and diluted earnings per share attributable to
the ordinary equity holders of the parent are based on the following data:
2012 2011
£ 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) 15.5 20.3
Number of shares
Weighted average number of shares for the purposes of basic earnings per share
(thousands) 18,978 18,946
Effect of potentially dilutive share options (thousands) 76 138
Weighted average number of shares for the purposes of
dilutive earnings per share (thousands) 19,054 19,084
Earnings per share from operations
Basic 81.7p 107.1p
Diluted 81.3p 106.4p
6. Borrowings
The borrowings are repayable as follows:
£ Millions 2012 2011
On demand or within one year 7.3 13.4
In the second year 7.4 3.8
In the third year - 7.7
- -
14.7 24.9
Less: Amounts due for settlement within 12 months
(shown under current liabilities) (7.3) (13.4)
Total repayable after 12 months 7.4 11.5
The other principal features of the Group's borrowings are as follows:
Bank overdrafts are repayable on demand. The bank overdrafts are secured on the
assets of the Group. At 31 December 2012, the Group had an overdraft of £3.6
million (2011: £9.6 million). In October 2012, the Group renewed its annual
working capital facility, which is US$12.5 million (£7.7 million) reduced from
US$15.0 (£9.2 million) in the prior year, priced at Bank of Scotland's base
rate plus a margin of between 2.0% and 3.0% depending on the ratio of Net Debt
to EBITDA (2011: priced at the Bank of Scotland's base rate plus a margin of
2.5%).
The Group has a term debt facility with Bank of Scotland PLC at US$27.0 million
(£16.6 million) with quarterly repayment of US$1.5million (£0.9 million) and a
final repayment of US$9.0 million (£5.53 million) due in expiry of the facility
in September 2014. The term loan is priced at LIBOR plus a margin of between
1.75% and 2.25% depending on the ratio of Net Debt to EBITDA. (2011: priced at
LIBOR plus a margin of 2.0%).
The Group has pledged all assets as collateral to secure banking facilities
granted to the Group.
Deferred consideration
The Group owns 84.0% (2011: 69.7%) 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.
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.
Risks Specific to the Industry in which the Group Operates
Fluctuations in foreign currency
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.
Competition
The power supply market is diverse and competitive in Asia, Europe and North
America. 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
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.
Risks Specific to the Group
Dependence on manufacturing facilities
The Group is dependent on its manufacturing facilities in China and Vietnam for
the production of the majority of its products. Any issues that cause
disruption at these production facilities could have a material adverse effect
on their businesses.
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.
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 2012, no one customer
accounted for more than 5% of revenue.
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.
Fluctuations of revenues, expenses and operating results
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.
Management stretch
The management team is likely to be faced with increased challenges associated
with any sustained adverse macroeconomic conditions. With the financial markets
uncertain, the management team must also be able to adapt to the changing
conditions and implement corrective measures as they are needed. It could
adversely affect the Group if the management team is not able to successfully
cope with these challenges.
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.
Risks relating to taxation of the Group
The Group is exposed to corporation tax payable in many jurisdictions including
the USA where the effective rate can be as high as 40.0%, the UK where the
corporation tax rate is currently 24.0% and a number of European jurisdictions
where the rates vary between 25.5% and 38.7%. In addition, the Group has
manufacturing activities in China and Hong Kong where the corporation tax rates
are 25% and 16.5% respectively and sales companies in Singapore and Switzerland
where the corporation tax rates are 17.0% and 20.0% respectively.
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. This could have an impact on earnings and potentially its share price.
8. 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.
9. 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 2011 or 2012. The
financial information for the year ended 31 December 2011 is derived from the
XP Power Limited statutory accounts for the year ended 31 December 2011, 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 2012 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), this announcement does not itself contain sufficient information to
comply with IFRSs. The Company expects to publish full financial statements
that comply with IFRSs later this month.
This announcement was approved by the directors on 25 February 2013.