Final Results

IFX Power PLC 30 January 2002 Embargoed until 07.00am 30 January 2002 IFX Power plc ('IFX' or 'the Group') Preliminary Results for the Year Ended 31 December 2001 IFX Power, one of the world's leading providers of power supply solutions to the mid-tier of the electronics industry, today announces its Preliminary Results for the year ended 31 December 2001. FINANCIAL HIGHLIGHTS £ Millions Year ended Year ended 31 31 30 June 1999 30 June 1998 December December 2001 2000 Turnover 86.5 77.8 Gross margin 25.4 22.1 Gross margin % 29.4% 28.4% Profit before tax, amortisation of goodwill and exceptional costs of re-organisation 5.6 9.7 Profit before tax 3.7 9.2 Free Cash Flow 2.3 1.5 Basic earnings per share 12.6p 37.3p Dividend 12p 12p (1) The results for the year ended 31 December 2000 include a one off gain of £1.1 million on the sale of shares from the Group's Employee Share Ownership Plan which took place at the time of the Company's placing and admission to the Official List of the UK Listing Authority. KEY ACHIEVEMENTS • Positive earnings and free cash flow achieved in tough market conditions. • Significant expansion of sales team - front-end sales resource increased by 68% to 129 sales engineers at the end of 2001 (2000: 77 sales engineers). • 7 new sales offices opened in Europe and a further 7 new offices added to US operations. • Worldwide businesses now unified under single global brand - XP. • Gross margins improved to 29.4% in 2001 (2000: 28.0%) due to a higher proportion of own brand product sales. • Roll out of the Group's Sales and Knowledge Management Tools completed. • £20 million revolving credit facility in place to fund further acquisitions. • Acquired certain assets including the customer base of Powerspec Electronics, Inc. in Northern California for consideration of US$ 3.5m. • US and UK businesses restructured to reduce costs. Larry Tracey, Chief Executive Officer, said: '2001 was a tough year and a significant contrast to the exceptional economic conditions which prevailed in 2000. IFX has weathered this challenging environment well, continuing to report robust earnings and healthy free cash flow. We have also used the current downturn to strengthen our sales presence across our target geographic markets, while our principal competitors have cut back. We have been able to undertake this strategic expansion, and remain profitable. 'Market conditions continue to be tough; at present we see no signs of immediate improvement in economic conditions in either the USA or Europe. Against this background, we have focussed on taking non-sales related costs out of the USA and UK businesses in order to help offset the costs of our geographic expansion. ' Enquiries: IFX Power plc James Peters, European Managing Director On the day 020 7950 2800 Duncan Penny, Finance Director Thereafter 0118 976 5087 www.ifxpower.com Weber Shandwick Square Mile 020 7950 2800 Kevin Smith or Sally Lewis IFX Power plc ('IFX' or 'the Group') Preliminary Results for the Year Ended 31 December 2001 CHAIRMAN'S STATEMENT I am pleased to be able to report positive earnings and free cash flows for the Group, against a background of particularly difficult market conditions in 2001. I am also pleased to report that the Group has significantly increased its geographic sales coverage and sales resource in line with its strategic aim of achieving market leadership in the North American and European mid tier merchant power supply markets. Financial Results Sales revenues for the Group declined by 18% to £86.5 million in 2001 (2000: £105.9m pro forma) due to difficult market conditions driven by a decline in demand from the networking and telecommunications industries. During this period we believe that the market for our products decreased by 30%, offsetting a similar market growth in 2000. However, we estimate that IFX's share of our target market has increased to 6.0% in the year (2000: 5.3%). We believe that this gain was largely at the expense of our smaller competitors, which still account for more than 50% of the market, as well as some of the larger competitors which operate in our tier of the market. Profit before tax and goodwill amortisation and exceptional re-organisation costs on a like for like basis decreased to £5.6 million (2000: £12.7m). Approximately £5.5 million of the decrease can be attributed to lower revenues, with a further £3.0 million representing the incremental resource invested to increase our sales force and geographic coverage. The decrease has been partially offset by an improvement in gross margin to 29.4% (2000: 28.0%), resulting from increased sales of our own branded 'XP' products and cost savings generated from integrating our two main US businesses. During the year we merged our two USA operating companies to form one combined USA sales force. At the same time, the representative contracts we had 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 by over £1 million on an annualised basis. The Group incurred costs of £707,000 as a result of this exceptional re-organisation. The Board is proposing a final dividend of 7.0p per share for approval at the Annual General Meeting making a total dividend for the year of 12.0p. This payment maintains the total dividend for the year at the 2000 level. Target Market and Geographic Expansion IFX's goal is to become the dominant supplier to the mid-tier of the merchant power supply market in North America and Europe. At the end of 2000, we ranked third by sales in our target market. We believe that we have gained further market share in 2001, moving up to second place and closing on the leader. Our strategy is to increase sales and engineering resources in those major regional markets where we have no or limited coverage. In Northern California, New England and the UK we are already market leaders, however these territories represent only 30% of the combined North American/European market. In the preliminary report for the year ended 31 December 2000, we stated that we aimed to achieve 90% coverage of our target geographic market of Europe and North America by the end of 2002. I am pleased to report that this goal has been reached much sooner than we originally expected. Our focus is firmly on achieving the required payback from the incremental resource we have added. Quality power supply sales engineers are in limited supply and the adverse market conditions experienced in 2001 allowed us to accelerate the recruitment of the sales engineers we need to achieve our financial goals. During 2001 we opened new sales offices in Denmark, France, Holland, Italy, Norway, Sweden and Switzerland, and in the USA, we opened new sales offices in Colorado, Minnesota, North Carolina, Ohio, Oregon, Pennsylvania and Texas. IFX has built a strong sales organisation with significant geographic coverage and we are now concentrating on using this sales channel to design-in our own XP branded product. Typically the period from design-in to production revenue is 6 to 9 months, consequently we expect a corresponding time lag between opening a new office and it generating its own revenues. Acquisitions On 22 June 2001, the Group acquired certain assets including the customer base and employees of Powerspec Electronics Inc. for US$3.5 million (approximately £2.5 million). Powerspec is a value-added provider of power supply solutions based in Northern California and one of our key competitors in that market. The operation has been integrated into XP-ForeSight Inc., the Group's USA 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 Danish customer base. The Group also took minority stakes in four additional power businesses during the year. XP - a Single Global Brand To demonstrate our continued emphasis on selling own branded product, our new products are now sold under the 'XP' brand. Our USA sales subsidiary, ForeSight Electronics, Inc. has been renamed XP-ForeSight, Inc. and International Power Sources, Inc. has been renamed XPiQ Inc. Our sales engineers now have better access to our customers' design engineers given that they are now visiting them as representatives of a worldwide manufacturer, rather than as a distributor of other manufacturers' products. Our transition from distributor to virtual manufacturer continues with consequential improvements in our gross margins. As we move forward we will aim to acquire more intellectual property so that we can gain more of the total margin available in the product. Customers Our customers design and market capital equipment, which is sold mainly to industry and commerce to improve productivity. To achieve competitive advantage, customers in these markets seek to differentiate their products with different designs such that the power supply requirements for most products will be different. Accordingly, to satisfy this demand, IFX offers the most complete range of products in our industry. As product lifecycles reduce, time to market becomes more and more important to our customers. We notice an increasing preference towards standard products which can be designed in quickly. Our broad product range compared to our competitors is an advantage to us in this area. Our potential customer base in the mid-tier of the market is 75,000 companies. In the past year we traded with approximately 11% of these. Many of our customers have experienced difficult trading conditions in 2001; particularly those in the telecommunications and networking sectors. This market downturn has had a corresponding effect on our 2001 revenues. Market conditions continue to be tough and at present, we see no signs of improvement in the economic conditions in either the USA or Europe, however, we consider that the long-term outlook for the capital equipment markets that we supply remains good. e-tools IFX has developed web-enabled proprietary software which has improved our effectiveness in identifying customers and their needs. We refer to this software internally as our Projects Database. This has been developed in order to manage the vast quantity of knowledge we accumulate on our customers and their product requirements as well as being an essential tool in managing the activity of our sales engineers. Our business model is predicated on aggregating the product requirements of 75,000 potential customers and reacting to this demand on a daily basis. In time, our suppliers will access our databases through the Internet to determine their production schedules. Internally, information is accessible through the IFX Intranet real time and data is recorded electronically. During 2001 the roll out of our Projects Database was completed throughout all companies within the Group. People Our people share in the success of our business and many already have equity interests. Over time we hope to increase these stakes by furthering the number of employees able to participate within the equity incentive schemes. A share option plan was approved for this purpose at the 2001 annual general meeting. In August 2001, Rich Sakakeeny agreed to join the Board as a non-executive director. Rich, a USA resident, has extensive experience in the power supplies industry, particularly in the 'virtual manufacturing' model which we have adopted. Rich was a founder of International Power Sources, Inc, a company acquired by the Group in July 2000 at the time of its listing on the London Stock Exchange. Outlook Our new product offerings for 2001 were significantly greater than any previous year and included new products for telecommunications, medical, data storage, networking, broadcast, instrumentation, process control and mobile equipment applications. Our marketing databases to identify new product requirements are now more powerful than ever before due to the roll out of the Projects Database. They will be further strengthened by the expansion of the sales resource across our target market, driven by acquisitions and increased resourcing of our existing regional offices. Our pipeline of new products for 2002 is strong and should surpass the 2001 record, both in terms of quality and quantity. Despite the fiscal measures in place in the USA we see no signs of any immediate economic recovery in either the USA or Europe. We believe that significant levels of inventories remain at many of our customers, particularly in the networking and telecommunication sectors which need to be worked off before any significant recovery can take place. For this reason we have focused on taking costs out of the USA and UK businesses to help offset the costs of our geographic expansion. On a personal note, this will be my last report as Chairman since I plan to retire at the forthcoming Annual General Meeting, as agreed when the Group was formed. I have enjoyed my two years as Chairman and I would like to thank all my staff for their support over this period and wish incoming Chairman Larry Tracey every success. Ed Kramar Chairman 30 January 2001 IFX Power plc Consolidated Profit and Loss Account For the Year Ended 31 December 2001 £ Millions Pro Statutory Forma Statutory 2001 2000 2000 Turnover Continuing operations 83.4 105.9 77.8 Acquisitions 3.1 - - Total Turnover Note 3 86.5 105.9 77.8 Gross profit 25.4 29.7 22.1 Selling and distribution (13.3) (10.3) (8.5) Administrative expenses Exceptional reorganisation costs (0.7) - - Other administrative expenses (6.2) (6.9) (4.9) Total administrative expenses (6.9) (6.9) (4.9) Goodwill amortisation (1.2) (0.9) (0.5) Gain on sale/allocation of ESOP shares - - 1.1 Other operating income 0.1 - 0.1 Operating profit Continuing operations 3.9 11.6 9.4 Acquisitions 0.2 - - Group operating profit Note 3 4.1 11.6 9.4 Share of associates' operating profit 0.1 - - Total operating profit 4.2 11.6 9.4 Interest receivable and similar income - 0.6 0.2 Interest payable and similar charges (0.5) (0.4) (0.4) Profit on ordinary activities before Taxation 3.7 11.8 9.2 Tax on profit on ordinary activities Note 4 (1.6) (4.4) (3.2) Profit on ordinary activities after taxation 2.1 7.4 6.0 Minority interests 0.5 - - Profit attributable to IFX shareholders 2.6 7.4 6.0 Dividends payable Note 5 (2.5) (2.5) (2.5) Retained profit for the period 0.1 4.9 3.5 Basic earnings per share Note 6 12.6p 35.7p 37.3p Earnings per share adjusted for goodwill and exceptional costs of re-organisation - fully diluted Note 6 20.3p 40.0p 40.5p Statement of Recognised Gains and Losses £ Millions 2001 2000 Profit attributable to IFX shareholders 2.6 6.0 Currency translation differences 0.2 - Total recognised gains relating to the year 2.8 6.0 IFX Power plc Statutory Consolidated Balance Sheet At 31 December 2001 £ Millions 2001 2000 Fixed assets Tangible assets 3.0 1.4 Intangible assets - Goodwill 20.0 18.2 Own shares 0.5 0.5 Investments 1.5 0.3 Total Fixed Assets 25.0 20.4 Current assets Stocks 10.1 13.4 Debtors 12.4 17.7 Cash at bank and in hand 1.5 5.5 Total current assets 24.0 36.6 Creditors: amounts falling due within one year (13.0) (24.2) Net current assets 11.0 12.4 Creditors: amounts falling after more then one year (3.4) - Net assets 32.6 32.8 Capital and reserves Called up share capital 0.2 0.2 Share premium account 27.0 27.0 Merger reserve 0.2 0.2 Profit and loss account 5.7 5.4 Total equity shareholders' funds 33.1 32.8 Minority interests (0.5) - Total capital and reserves 32.6 32.8 IFX Power plc Statutory Consolidated Cash Flow for the Year Ended 31 December 2001 £ Millions 2001 2000 Net cash flow from operating activities Note 7 6.5 5.4 Returns on investments and serving of finance Interest paid (0.5) (0.4) Interest received - 0.2 Net cash outflow from returns on investments and the servicing of finance (0.5) (0.2) Tax paid (2.4) (3.1) Capital expenditure Purchase of tangible fixed assets (1.4) (0.7) Sale of tangible fixed assets 0.1 0.1 Net cash outflow from capital expenditure (1.3) (0.6) Free cash flow 2.3 1.5 Purchase of subsidiary undertakings Note 10 (7.0) (25.5) Purchase of freehold properties (0.9) - Equity dividends paid (2.5) (1.0) Financing New shares issued - 27.0 New loans 3.4 11.8 Loan repayments - (13.2) Proceeds from sale of ESOP shares - 1.3 Net cash flow from financing 3.4 26.9 (Decrease)/increase in cash (4.7) 1.9 Notes to the Interim Results for the Year Ended 31 December 2001 1. Basis of preparation Accounting convention The financial statements have been prepared under the historical cost convention. Basis of consolidation The Group has accounted for the acquisition of XP PLC and Forx Inc. using the merger method of accounting and all other subsidiaries 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 useful life for 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 into 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 year ended 31 December 2000 has been determined as if the trading companies XP PLC, XP-ForeSight Inc. and XpiQ Inc. were combined from the beginning of the financial period concerned. The figures have been extracted from the financial statements of the companies concerned. The pro forma financial information for the year ended 31 December 2000 does not include Powerspec and KnuD Kamuk ApS which were acquired during 2001. The pro forma adjustments reflected in the 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, providing 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 £ Millions Year to 31 Year to 31 Year to 31 December 2001 December 2000 December 2000 Statutory Basis Pro Forma Basis Statutory Basis Turnover Europe 21.1 20.8 20.8 United States 65.4 85.1 56.9 Total Turnover 86.5 105.9 77.8 Group Operating Profit (before goodwill) Europe 1.0 3.1 4.0 United States 5.0 9.4 5.9 Total Group Operating Profit (before goodwill) 6.0 12.5 9.9 Amortisation of goodwill (1.2) (0.9) (0.5) Total Group Operating Profit after goodwill 4.8 12.6 9.4 At 31 December At 31 December 2001 2000 Net assets Europe 3.4 7.6 United States 29.2 25.2 Total net assets 32.6 32.8 4.Taxation £ Millions Year to 31 Year to 31 Year to 31 December 2001 December 2000 December 2000 Statutory Basis Pro Forma Basis Statutory Basis United Kingdom 0.8 1.3 1.1 International Taxation: Subsidiary undertakings 0.8 3.1 2.1 Total taxation 1.6 4.4 3.2 5. Equity Dividends An interim dividend of 5p (2000 - 5p) per share was paid on 18 October 2001. A final divided of 7p (2000 - 7p) is proposed for approval to be paid on 24 May 2001 to shareholders on the register of members on 3 May 2001. 6. Earnings per share £ Millions Year to 31 Year to 31 Year to 31 December 2001 December 2000 December 2000 Statutory Basis Pro Forma Basis Statutory Basis Earnings for the financial period for Basic earnings per share 2.6 7.4 6.0 Amortisation of goodwill 1.2 0.9 0.5 Exceptional costs of re-organisation 0.7 - - Tax credit on exceptional costs of reorganisation (0.3) - - Earnings for adjusted earnings per share 4.2 8.3 6.5 Weighted average number of shares (thousands) - basic 20,568 20,731 16,132 Weighted average number of shares (thousands) - fully diluted 20,712 20,731 16,133 7. Reconciliation of Operating Profit to net Cash Inflow from Operating activities £ Millions Year to 31 Year to 31 December December 2001 2000 Operating profit 4.8 9.4 Exceptional costs of re-organisation (0.7) - Depreciation and amortisation 1.7 0.9 Profit on sale and allocation of ESOP shares - (1.1) Decrease/(increase) in stocks 3.8 (4.7) Decrease/(increase) in debtors 5.3 (0.3) (Decrease)/increase in creditors (8.4) 1.2 Net cash inflow from operating activities 6.5 5.4 8. Reconciliation of net (debt)/funds £ Millions Year to 31 Year to 31 December December 2001 2000 Net cash at 1 January 1.9 - New loan (3.4) - (Decrease)/increase in cash per cash flow statement (4.7) 1.9 Net (debt)/funds at 31 December (6.2) 1.9 Represented by Cash at bank and in hand 1.5 5.4 Overdrafts (4.3) (3.5) Loan (3.4) - Net (debt)/funds at 31 December (6.2) 1.9 9. Borrowings On 22 August 2001 the Group obtained a multi-currency revolving credit facility from Bank of Scotland totalling £20 million committed for three years at an interest rate of 1.5% above LIBOR in order to finance acquisitions. At 31 December 2001 £3.4 million had been drawn down under this facility. In addition to this the Group has a £10 million working capital facility which is repayable on demand. Both facilities are secured on the assets of the Group. 10. Acquisitions Cash consideration for acquisitions. £ Millions Year to 31 Year to 31 December 2001 December 2000 XP-ForeSight Inc - 12.5 XPiQ Inc 2.7 13.3 Powerspec 2.7 - Kamuk XP Power ApS 0.5 - MPI - XP Power AG 0.8 - Others 0.5 0.5 Sub total 7.2 26.3 Less: cash acquired (0.2) (0.8) Total cash consideration 7.0 25.5 11. General The financial information set out in this announcement does not constitute the company's statutory accounts for the years ended 31 December 2001 or 2000. The financial information for the year ended 31 December 2000 is derived from the IFX Power plc statutory accounts for the year ended 31 December 2000 which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s237 (2) or (3) Companies Act 1985. The statutory accounts for the year ended 31 December 2001 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. This announcement was approved by the directors on 29 January 2002. This information is provided by RNS The company news service from the London Stock Exchange

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