30 July 2018
XP Power Limited
(“XP Power” or
“the Group” or the “Company”)
Interim Results for the six months
ended 30 June 2018
XP Power, one of the world's leading developers and
manufacturers of critical power control solutions for the
electronics industry, today announces its interim results for the
six-month period ended 30 June
2018.
|
Six
months ended |
Six
months ended |
|
|
30
June 2018 |
30
June 2017 |
|
|
(Unaudited) |
(Unaudited) |
|
Highlights |
|
|
|
|
|
|
|
Order intake |
£101.4m |
£93.4m |
|
Revenue
Turnover |
£93.2m |
£80.2m |
|
Gross margin |
46.7% |
46.9% |
|
Interim dividend per
share (see Note 8) |
33.0p |
31.0p |
|
Adjusted |
|
|
|
Adjusted operating
margin1 |
22.2% |
21.7% |
|
Adjusted profit before
income tax1 |
£20.3m |
£17.3m |
|
Adjusted profit
attributable to equity holders2 |
£16.3m |
£13.0m |
|
Adjusted
diluted earnings per share (see Note 9)2
|
83.7p |
67.3p |
|
Reported |
|
|
|
Operating margin |
20.3% |
18.1% |
|
Profit before income
tax |
£18.5m |
£14.4m |
|
Profit attributable to
equity holders |
£14.6m |
£10.9m |
|
Diluted earnings per
share |
74.9p |
56.4p |
|
We assess the Group’s performance using various alternative
performance measures which are not defined under IFRS. We use these
to provide readers with additional useful information on the
underlying trends and performance of the Group. Reconciliations of
these measures can be found in Note 5 in the notes to the
condensed consolidated financial statements.
1Adjusted for £0.4 million for completed
acquisition costs (1H 2017: £2.8 million of acquisition costs, both
completed and aborted), intangibles amortisation of £1.0 million
(excluding amortisation for development costs) (1H 2017: £0.1
million) and changes in accounting policy of £0.4 million (1H 2017:
nil)
2Adjusted for £0.4 million for completed
acquisition costs (1H 2017: £2.8 million of acquisition costs, both
completed and aborted), intangibles amortisation of £1.0 million
(excluding amortisation for development costs) (1H 2017: £0.1
million), non-recurring tax benefits of £0.1 million (1H 2017: £0.8
million) and changes in accounting policy of £0.4 million (1H 2017:
nil).
· Strong first half performance,
with continued momentum in orders and revenues as new design wins
enter production, and our global capital equipment markets
currently buoyant
· Order intake increased by 9% to
£101.4 million (+17% in constant currency and 10% on a
like-for-like basis in constant currency)
· Revenue increased by 16% to
£93.2 million (+25% increase in constant currency and 13% on a
like-for-like basis in constant currency)
· Own-design XP product revenues
increased 20% on a reported basis to a record £72.6 million (1H
2017: £60.5 million), and now represent 78% of total revenues (1H
2017: 75%)
· Supply chain exhibiting lead
time extension and cost inflation on certain components – while
XP’s safety stocks have largely insulated the Group and its
customers from these shortages to date, inflation is generating
minor margin pressure and building stocks has increased the working
capital associated with inventory
· Acquisition of Glassman HV in
May 2018 for US$44.5m adds a highly complementary product set
of High Voltage, High Power products to the Group portfolio,
expanding our addressable market significantly
· Construction of second
manufacturing facility in Vietnam
on track to complete by Q4 2018, with production scheduled to come
on stream in the first half of 2019
· Dividend for the first half of
2018 of 33.0 pence per share (1H
2017: 31.0 pence per share) up 6%
· Overall momentum has continued
to build in the business with a book to bill in 1H of 1.09 (1H 2017
1.16) and the Group entered the second half with a strong order
book of £85.5 million (December 2017:
£80.3 million).
James Peters, Chairman,
commented:
“The Group has had a strong first half. Reported order
intake and revenue performance for the first six months of 2018
were robust more than offsetting the impact of Sterling
appreciation. The performance was a result of continuing new
design wins entering their production phase and the continued
buoyancy of our customers’ markets.”
Our strong performance is enabling us to invest part of the cash
generated from this revenue growth to expand our engineering
capabilities by acquisition. The acquisition of Glassman High
Voltage in May 2018 added market
leading High Power High Voltage products to the XP portfolio’
further increasing our addressable market.
While we remain conscious of potential risks arising from
component cost inflation and, macroeconomic challenges, our strong
order book, combined with design wins over recent years entering
production, means that the Board continues to anticipate that the
Group’s performance for the full year will be in line with its
existing expectations.”
Enquiries:
XP
Power
Duncan Penny, Chief
Executive
+44 (0)118 984 5515
Gavin Griggs, Chief Financial
Officer
+44 (0)118 984 5515
Citigate Dewe
Rogerson
+44(0)20 7638 9571
Kevin Smith/Jos
Bieneman/Sam Stibbs
Note to editors
XP Power designs and manufactures power controllers, the
essential hardware component in every piece of electrical equipment
that converts power from the electricity grid into the right form
for equipment to function.
XP Power typically designs power control solutions into the end
products of major blue-chip OEMs, with a focus on the industrial
(circa 42% of sales), healthcare (circa 22% of sales),
semiconductor manufacturing (circa 26% of sales) and technology
(circa 10% of sales) sectors. Once designed into a programme,
XP Power has a revenue annuity over the life cycle of the
customer’s product which is typically 5 to 7 years depending on the
industry sector.
XP Power has invested in research and development and its own
manufacturing facilities in China
and Vietnam, to develop a range of
tailored products based on its own intellectual property that
provide its customers with significantly improved functionality and
efficiency.
Headquartered in Singapore and
listed on the Main Market of the London Stock Exchange since 2000,
XP Power serves a global blue-chip customer base from 29 locations
in Europe, North America and Asia.
For further information, please visit xppower.com
30 July 2018
XP Power Limited
(“XP”, “XP Power”
or “the Group”)
Interim Results for the six months
ended 30 June 2018
INTERIM
STATEMENT
Overview
The Group has had a good first half of 2018. Our reported order
intake, revenues and earnings for the first six months of
2018 were comfortably ahead of the equivalent period in 2017,
offsetting the impact of Sterling appreciation year on year. The
Group benefited from the continued momentum in the capital
equipment markets and, significantly, new design wins entering
their production phase. The resulting solid growth in earnings and
cashflow generation, and our confidence in the Group’s outlook,
support a further increase in the dividend.
We have continued to execute well against our strategy and are
benefiting from the positive effect of design wins from our newer
product introductions and our increased focus on engineering
solutions which is providing more value to our customers. The
successful implementation of our strategy continues to drive market
share gains and we are encouraged both by the strength of our order
book and our continued new programme wins. Our strong performance
is enabling us to invest part of the cash generated from this
revenue growth to expand our product offering and engineering
capabilities by acquisition to enhance our future growth. Our
acquisition of Glassman High Voltage in May 2018 is the latest step in this strategy and
we are excited about its potential within the enlarged Group. We
now have an enviable product portfolio of over 250 product families
from low voltage to 500 kilo Volts at power levels up to 200 kilo
Watts. This combined with our excellent customer support makes us
the ideal choice as a power solutions provider to our target
customers to power their critical systems.
Our strategy and value proposition
The Group has applied a consistent strategy of moving up the
value chain and our growth derives in part from the targeting of
key account customers. Once we are approved to supply these
larger customers, we have a strong track record of successfully
gaining a larger share of their business. We also continue to
expand the breadth of our product portfolio, both organically and
by acquisition, in what remains a highly fragmented sector,
therefore enabling us to increase our addressable market. Since the
end of 2015 we have completed three acquisitions which have allowed
us to expand into the high voltage and radio frequency (RF) power
market sectors increasing our addressable market by circa
$2.0Bn (75%).
Our value proposition to customers is to reduce their overall
costs of design, manufacture and operation. We achieve this by
providing excellent sales engineering support and producing new
highly reliable products that are easy to design into the
customer’s system, consume less power, take up less space and
reduce installation times.
Our vision is to be the first-choice power solutions provider,
delivering the ultimate experience for our customers and as a place
of work for our people.
Acquisitions
On 25 May 2018, XP Power acquired
the assets and business of Glassman High Voltage, a company based
in Highbridge, New Jersey, USA,
specialising in High Voltage High Power (HVHP) conversion products
which it supplies to the industrial and technology sectors. Total
consideration of US$44.5 million
(£33.4 million) was paid in cash on completion. Revenue
recognised in the period from completion to the 30 June 2018 was £1.2 million and net profit of
£0.3 million in line with expectations.
HVHP is generally used in applications involved in the
ionisation and acceleration of particles. Typical applications
include semiconductor manufacturing equipment, vacuum/plasma
processing, analytical instrumentation, medical diagnostics and
test equipment. Glassman has the most comprehensive standard
product portfolio in its sector, with the capabilities to provide
customer specific power solutions and an excellent reputation for
quality and reliability.
Comdel was acquired in September
2017, allowing the Group to enter the radio frequency (RF)
power market. RF products are used in a number of semiconductor
manufacturing processes, medical applications and various induction
and dielectrical heating and welding applications. The
business is performing in line with expectations and revenue
recognised in the 6 month period to the 30
June 2018 was £7.6 million and net profit of £1.7
million.
Glassman, Comdel and XP Power share several customers, and while
there is no direct overlap in product lines, the power supply
solutions of these recently acquired companies are highly
complementary. Both Glassman and Comdel enhance the Group’s ability
to implement its strategy of winning a greater share of business
from its target customers by achieving wider vertical penetration
of their accounts. As well as a product offering suitable for an
array of applications used by some of XP Power’s existing customer
base, Glassman and Comdel also bring a number of new customers to
the Group.
These acquisitions will enable XP Power to provide its existing
customers with a comprehensive product offering in RF power
generation and RF matching systems, and now high power, high
voltage products. These are both product segments with robust
demand fundamentals and areas in which we did not previously
operate.
Our key customers can now come to one power solutions provider
for all their power requirements, providing better service and
allowing them to reduce their vendor base and costs.
Advisory and acquisition costs in the period were £0.4 million
(1H 2017: £2.8 million acquisition costs, both completed and
aborted).
Trading and Financial Review
XP Power supplies power control solutions to original equipment
manufacturers (“OEMs”) who supply the healthcare, industrial,
semiconductor manufacturing and technology markets with high value,
high reliability products. The increasing importance of
energy efficiency for environmental, reliability and economic
reasons; the necessity for ever smaller products; the accelerating
rate of technological change; and the increasing proliferation of
electronic equipment and semiconductor devices, have established a
strong foundation for growth in demand for XP Power’s products.
Order intake of £101.4 million (1H 2017: £93.4 million) was up
9% on a reported basis (17% in constant currency and 10% on a
like-for-like and constant currency basis) and set another new
record for the Group. The average US Dollar to Sterling exchange
rate was 1.26 in the first half of 2017 compared with 1.39 in the
first half of 2018 representing a 10% strengthening of Sterling.
Given the majority of the Group’s revenues are earned in US Dollars
this decreased the reported order intake in the first half by
approximately £7.1 million, or 9%, compared to the first half of
2017. In US Dollar terms, compared to the same period a year ago,
Asia increased by 1%, Europe increased by 11% and North America increased by 44% (22%
organic).
Order intake in the first half of 2018 exceeded revenues with a
resultant book-to-bill ratio of 1.09 (1H 2017: 1.16). Overall
momentum has continued to build in the business and we enter the
second half of the current year with a strong order book of £85.5
million (December 2017: £80.3
million).
Reported revenues grew 16% to £93.2 million in the six months to
30 June 2018 compared to £80.2
million in the same period a year ago. When adjusting to constant
currency the underlying growth was 25% or 13% on a like-for-like
and a constant currency basis.
Revenues in North America were
US$79.0 million (1H 2017:
US$54.9 million), up 44% compared to
the same period a year ago. Excluding revenues from the acquired
Comdel and Glassman businesses of US$12.0
million, the organic growth rate was 22%, reflecting, in
particular, the strong performance of the semiconductor equipment
market. Revenues in Europe were
US$41.1 million (1H 2017:
US$37.0 million), up 11% on the same
period a year ago (approximately half the European revenues are
denominated in US Dollars). Revenues in Asia were US$9.0
million (1H 2017: US$8.9
million), up 1% compared with the same period a year
ago.
Given the growing significance of the semiconductor
manufacturing sector to the Group results and the favourable long
term fundamentals of this market we have decided to disclose our
revenues from this sector separately within our segmental reporting
for the first time. All sectors remain buoyant suggesting that the
broad recovery we have seen in capital equipment markets in 2017 is
continuing into 2018.
On a sector basis, revenues from healthcare customers grew by
14% to US$28.0 million (1H 2017:
US$24.6 million). Revenues from
industrial customers increased by 10% to US$54.1 million (1H 2017: US$49.2 million). Revenues from technology
customers grew 13% to US$12.4 million
(1H 2017: US$11.0 million). Revenues
from semiconductor manufacturing customers increased by 115% to
US$34.6 million (1H 2017:
US$16.1 million). The acquisitions of
Comdel and Glassman contributed US$8.6
million to 2018 semiconductor manufacturing revenues so the
organic growth rate of the semiconductor manufacturing sector was
68%. This robust organic growth rate was underpinned by a number of
new programme wins by our engineering solutions group entering into
production, expanding our market share. Notwithstanding this
performance our market share remains very low in this attractive
segment, highlighting the future growth opportunity. The
semiconductor manufacturing sector has highly attractive growth
prospects which are being driven by the growth of big data,
augmented intelligence and the internet of things.
XP Power’s expansion of its capabilities into higher voltages,
higher power and RF power have made us an attractive power
solutions provider to the many healthcare and semiconductor
manufacturers who use these type of products and value our
engineering solutions capability.
In terms of overall revenue for the first half of 2018,
industrial represented 42% (1H 2017: 49%), technology represented
10% (1H 2017: 11%), healthcare represented 22% (1H 2017: 24%) and
semiconductor manufacturing represented 26% (1H 2017: 16%).
Our customer base remains highly diversified with the largest
customer accounting for only 16% of revenue, spread over 140
different programmes/part numbers.
Margins
Gross margin in the first half of 2018 was 46.7% (1H 2017:
46.9%). Against a background of buoyant market conditions, we are
now seeing some shortages of components together with component
price inflation. To date our safety stocks have largely insulated
us and our customers from these shortages but this caused a minor
margin decline in the first half of 2018, although this was
partially offset by the effect of strengthening Sterling. We are
continuing to manage our component inventory tightly, building in a
sufficient margin of safety stock on critical lines wherever
possible in order to support our customers.
As Sterling strengthens, our reported revenues decrease due to
translation but so do our cost of sales although at a greater rate
as a higher proportion of the cost of sales are non-Sterling
denominated than our revenues. The result is lower gross margins in
absolute terms but the gross margin percentage increases. The
average exchange rate for converting US Dollars into Sterling in
the period was 1.39 in the first half of 2018 (1H 2017: 1.26); a
strengthening of 10%. We also have revenues in Euro with costs in
US Dollars. The average exchange rate for converting Euro into
Sterling in the period was 1.14 in the first half of 2018 (1H 2017:
1.17); a 3% weakening of Sterling. We estimate that the effect of a
stronger Sterling increased the gross margin percentage by 170
basis points.
Operating expenses in the first half were £23.2 million (1H
2017: £20.2 million) after deducting £1.0 million of intangibles
amortisation (1H 2017: £0.1 million) and £0.4 million of advisory
and acquisition costs (1H 2017: £2.8 million of acquisition costs,
both completed and aborted). Again, there is a significant
translation effect from the strengthening of Sterling versus the US
Dollar comparing the first half of 2018 with the first half of
2017. We estimate that this translation effect decreased reported
operating expenses by approximately £1.9 million. In addition, we
had the full period cost impact of operating expenses of Comdel,
and those from Glassman from late May
2018, which totalled £1.3 million.
We are engaging in ever more complicated programmes with many of
our key customers. These customers value XP Power’s engineering
solutions and power conversion expertise to get their products to
market more quickly and solve their power-related challenges.
Systems are becoming more complex and there is increasing demand
for power conversion solutions that communicate with both the
customers’ applications and with the outside world as the concept
of an Internet of Things promulgates. This area of the market
allows us to add more value to our customers’ engineering teams and
is less crowded with low cost Asian competition. As such, we
continue to reinvest part of the cash returns generated from our
growth to fund further expansion of our engineering capabilities,
particularly our engineering solutions groups in Asia, Europe
and North America.
Gross product development spend was £6.6 million (1H 2017: £5.5
million), £2.8 million of which was capitalised (1H 2017: £2.0
million), and £1.4 million amortised (1H 2017: £1.2 million). We
will continue to invest in engineering resources to drive future
revenue growth.
Notwithstanding our investment in additional customer support
and engineering resources, we continue to achieve an adjusted
operating margin of 22.2% (1H 2017: 21.7%) highlighting the
strength of our business model.
Taxation
The tax charge for the period was £3.8 million (1H 2017: £3.2
million) which represents an effective tax rate of 20.5% (1H 2017:
22.2%) following the impact of the Tax Cuts and Jobs Act in
the United States. We have used an
effective tax rate of 18.7% to compute the adjusted earnings per
share.
We currently expect our future tax rate to be in the range of
17% to 19% depending on the geographic distribution of our future
profits.
Financial Position
Class-leading gross and operating margins and modest capital
requirements continue resulting in strong performance. The
impact the abovementioned supply chain dynamic has resulted in
increased level of working capital particularly inventories.
After payment of the 2017 final dividend and the £33.4 million cash
consideration for the Glassman acquisition our net debt was £46.5
million at 30 June 2018. This
compares with net debt of £9.0 million at 31
December 2017 and net cash of £8.0 million at 30 June 2017.
Product Development
New products are fundamental to our revenue growth. The broader
our product offering, the more opportunity we have to increase
revenues by expanding our available market. As expected, the
significant number of new product families introduced over the last
three years has yet to have a material impact on our revenues,
given the time lag from launch to production. This is due to the
lengthy design-in cycles required by our customers to qualify the
power converter in their equipment, as well as by the requirement
to gain the necessary safety agency approvals.
XP launched 12 new product families in the first half of 2018
(1H 2017: 14). We continue to lead our industry on the introduction
of high efficiency, “green” products, with 11 of those new products
released in the first half of 2018 having high efficiency and/or
low stand-by power.
Revenue from own-design products was £72.6 million (1H 2017:
£60.5 million) and now represents 78% of total revenue (1H 2017:
75%).
With larger customers continuing to reduce the number of vendors
they deal with, XP Power’s broad product offering, excellent global
engineering support, in-house manufacturing capability and
industry-leading environmental credentials leave the Group
well-placed to secure further preferred supplier agreements. The
addition of RF power and high voltage/high power products to our
range via the acquisitions of Comdel and Glassman further enhances
this proposition.
Manufacturing Progress
XP Power’s move into manufacturing in 2006 has been instrumental
in enabling the Group to win approved and preferred supplier status
with new Blue-Chip customers who value suppliers that have complete
control over their supply chain and product manufacture to ensure
the highest levels of quality and agility.
To supplement our original Chinese manufacturing facility in
Kunshan near Shanghai, our
Vietnamese manufacturing facility, located in Ho Chi Minh City, began production of its
first magnetic components in March
2012 and is now producing the majority of the Group’s
magnetics.
Producing our own magnetic components in Vietnam is helping us mitigate the rise of
Chinese labour costs. In addition, extending vertical integration
to the critical magnetic components used in power converters is
seen as an additional value proposition by many of our customers,
notably in the healthcare and high reliability industrial
sectors.
In the fourth quarter of 2014 we began production of the first
complete power converters in Vietnam. We now have 282 (1H 2017: 259) part
numbers approved for production in Vietnam with more in the pipeline. XP
manufactured 716,900 (1H 2017: 693,000) power converters in total
during the first half of 2018 and 504,800 (1H 2017: 416,000) of
these were produced in Vietnam. We
expect the proportion of power converters produced in Vietnam to increase further as we transfer
more products to that facility. Kunshan will focus on the higher
power, higher complexity products.
In October 2017 we commenced
construction of a second factory on our existing site in
Vietnam. We expect construction to
be completed by the fourth quarter of this year, with production
scheduled to come on stream in the first half of 2019. We estimate
that our existing Asian manufacturing facilities have the capacity
to produce approximately US$170
million of end revenue of our own manufactured products. The
second facility in Vietnam will
add an additional capability of approximately US$130 million of revenue.
We estimate the cost of the Vietnam II building and the initial
equipment set to be approximately US$6.5
million of which US$1.5
million has been incurred to date.
Dividend
The Company makes quarterly dividend payments. Our strong cash
flow and confidence in the Group’s prospects have enabled us to
increase total dividends for the first half by 6% to 33.0 pence per share (1H 2017: 31.0 pence per share).
The first quarter dividend payment of 16.0 pence per share was made on 11 July 2018. The second quarter dividend
of 17.0 pence per share will be paid
on 11 October 2018 to shareholders on
the register at 14 September
2018.
The compound average growth rate in dividends over the last 10
years has been 13%.
Brexit and the impact of Tariff
changes
The Group is monitoring the progress on Brexit negotiations and
has plans in place to ensure continued effective operations in the
event of any conceivable scenario. We are also tracking the
ongoing Global Tariff movements and the impact they may have on
both components and finished power supplies; at this stage the
impact is envisaged to be minimal. In the event that either
Brexit or Tariff changes do impact the business or operations the
Group will take actions to address.
Environmental Impact and “Green XP
Power” products
XP Power has placed improved environmental performance at the
heart of its operations both in terms of minimising the impact its
activities have on the environment and, as importantly, in its
product development strategy.
We have developed a class-leading portfolio of green products
with efficiencies up to 95% and many of these products also have
low stand-by power (a feature to reduce the power consumed while
the end equipment is not operational but in stand-by mode).
Revenues for these ultra-high efficiency “Green XP Power” products
continue to grow and are up by 5% on a reported basis to £19.7
million (1H 2017: £18.8 million) representing 21% of total revenue
(1H 2017: 23%). The RF power products added to our portfolio as a
result of the acquisition of Comdel are not classified as “Green XP
Power” products.
Outlook
We have made a strong start to 2018, with the momentum of 2017
continuing into the first half of the current year. Our
book-to-bill ratio in the first half of 2018 was robust at 1.09 and
customer open order books totalled £85.5 million at the period end.
We are confident that our new product releases and design wins,
particularly from our engineering solutions groups, will support
our revenue growth. While we remain mindful of potential risks
arising from inflationary pressure in component prices and, global
macroeconomic challenges, the Board expects the Group’s performance
for the full year will be in line with its existing
expectations.
The acquisitions of Comdel and Glassman have dramatically
expanded the Group’s product portfolio and we are now able to offer
a full suite of products across low power, high power and radio
frequency. Our expanded capability leaves the Group well placed to
take a larger share of the business available at our key accounts
where we already have approved or preferred status, in line with
our strategy.
We believe we are well along the path to achieving our vision of
becoming the first choice power solutions provider to our existing
and target customer base.
Independent review report to XP Power
Limited
Report on review of interim financial
information
Introduction
We have reviewed the accompanying condensed consolidated
financial information of XP Power Limited (“the Company”) and its
subsidiaries (“the Group”) set out on pages 11 to 32, which
comprise the condensed consolidated balance sheet of the Group as
at 30 June 2018, the condensed
consolidated statements of comprehensive income, changes in equity
and cash flows for the 6-month period then ended and the related
notes. Management is responsible for the preparation and
presentation of this condensed consolidated interim financial
information in accordance with International Accounting Standard 34
Interim Financial Reporting as adopted by the European Union
and the Disclosure and Transparency Rules of the United Kingdom’s
Financial Conduct Authority. Our responsibility is to express a
conclusion on this interim financial information based on our
review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity.
A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly
financial report, which comprise the “Interim Results” set out on
pages 1 to 3, “Interim Statement” set out on pages 4 to 9 and
“Risks and uncertainties” set out on pages 33 to 34, and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the financial
information.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying condensed consolidated
interim financial information is not prepared, in all material
respects, in accordance with International Accounting Standard 34
Interim Financial Reporting as adopted by the European Union
and the Disclosure and Transparency Rules of the United Kingdom’s
Financial Conduct Authority.
PricewaterhouseCoopers LLP
Public Accountants and Chartered Accountants
Singapore,
30 July 2018
XP Power Limited
Condensed Consolidated Statement of
Comprehensive Income
For the six months ended 30 June 2018
£ Millions |
Note |
Six months
ended
30 June 2018
(Unaudited) |
Six months ended
30 June 2017
(Unaudited) |
|
|
|
|
Revenue |
5 |
93.2 |
80.2 |
Cost of sales |
6 |
(49.7) |
(42.6) |
Gross profit |
|
43.5 |
37.6 |
|
|
|
|
Expenses |
|
|
|
Distribution and marketing |
6 |
(18.3) |
(15.0) |
Administrative |
6 |
(1.1) |
(3.4) |
Research and development |
6 |
(5.2) |
(4.7) |
Operating profit |
|
18.9 |
14.5 |
|
|
|
|
Finance charge |
6 |
(0.4) |
(0.1) |
Profit before income tax |
|
18.5 |
14.4 |
|
|
|
|
Income tax expense |
7 |
(3.8) |
(3.2) |
Profit after income tax |
|
14.7 |
11.2 |
|
|
|
|
Other comprehensive
income: |
|
|
|
|
|
|
|
Items that may be reclassified
subsequently to profit or loss: |
|
|
|
Cash flow hedges |
|
0.5 |
(0.6) |
Exchange differences on translation
of foreign operations |
|
1.3 |
(0.9) |
Other comprehensive
income/(loss), net of tax |
|
1.8 |
(1.5) |
|
|
|
|
Total comprehensive
income |
|
16.5 |
9.7 |
|
|
|
|
Profit attributable to: |
|
|
|
- Equity holders of the Company |
|
14.6 |
10.9 |
- Non-controlling interests |
|
0.1 |
0.3 |
|
|
14.7 |
11.2 |
|
|
|
|
Total comprehensive income
attributable to: |
|
|
|
- Equity holders of the Company |
|
16.3 |
9.4 |
- Non-controlling interests |
|
0.2 |
0.3 |
|
|
16.5 |
9.7 |
|
|
|
|
Earnings per share attributable to equity holders of the
Company |
|
Pence per
Share |
Pence per
Share |
|
|
|
|
Basic |
9 |
76.4 |
57.2 |
Diluted |
9 |
74.9 |
56.4 |
|
|
|
|
The above condensed consolidated
statement of comprehensive income should be read in conjunction
with the accompany notes.
XP Power Limited
Condensed Consolidated Balance
Sheet
As at 30 June
2018
£ Millions |
Note |
At
30
June 2018
(Unaudited) |
At
31
December
2017 |
At 30
June 2017
(Unaudited) |
ASSETS |
|
|
|
|
Current
assets |
|
|
|
|
Corporate tax
recoverable |
|
2.5 |
2.9 |
- |
Cash and cash
equivalents |
11 |
12.1 |
15.0 |
11.3 |
Inventories |
|
50.6 |
37.8 |
33.0 |
Trade receivables |
|
30.0 |
23.8 |
23.2 |
Other current
assets |
|
5.2 |
3.8 |
2.3 |
Derivative financial
instruments |
|
0.3 |
0.2 |
- |
Total current
assets |
|
100.7 |
83.5 |
69.8 |
Non-current
assets |
|
|
|
|
Goodwill |
|
56.4 |
40.4 |
37.5 |
Intangible assets |
10 |
35.9 |
23.5 |
15.9 |
Property, plant and
equipment |
|
27.9 |
22.5 |
19.5 |
Deferred income tax
assets |
|
1.4 |
1.4 |
0.4 |
ESOP loans to
employees |
|
0.2 |
0.3 |
0.4 |
Total non-current
assets |
|
121.8 |
88.1 |
73.7 |
Total
assets |
|
222.5 |
171.6 |
143.5 |
LIABILITIES |
|
|
|
|
Current
liabilities |
|
|
|
|
Current income tax
liabilities |
|
4.1 |
3.5 |
3.1 |
Trade and other
payables |
|
28.0 |
21.4 |
22.2 |
Borrowings |
12 |
- |
- |
3.3 |
Derivative financial
instruments |
|
0.2 |
0.2 |
0.1 |
Total current
liabilities |
|
32.3 |
25.1 |
28.7 |
Non-current
liabilities |
|
|
|
|
Accrued
consideration |
|
1.6 |
1.4 |
1.5 |
Borrowings |
12 |
58.6 |
24.0 |
- |
Deferred income tax
liabilities |
|
4.6 |
4.2 |
4.6 |
Total non-current
liabilities |
|
64.8 |
29.6 |
6.1 |
Total
liabilities |
|
97.1 |
54.7 |
34.8 |
NET ASSETS |
|
125.4 |
116.9 |
108.7 |
EQUITY |
|
|
|
|
Equity attributable
to equity holders of the Company |
|
|
|
|
Share capital |
|
27.2 |
27.2 |
27.2 |
Merger reserve |
|
0.2 |
0.2 |
0.2 |
Treasury shares |
|
1.4 |
0.4 |
0.1 |
Hedging reserve |
|
0.3 |
(0.2) |
(0.3) |
Translation
reserve |
|
0.8 |
(0.4) |
2.6 |
Other reserve |
|
(0.8) |
(0.8) |
- |
Retained earnings |
|
95.4 |
89.6 |
78.0 |
|
|
124.5 |
116.0 |
107.8 |
Non-controlling
interests |
|
0.9 |
0.9 |
0.9 |
TOTAL
EQUITY |
|
125.4 |
116.9 |
108.7 |
The above condensed consolidated
balance sheet should be read in conjunction with the accompany
notes.
XP Power Limited
Condensed Consolidated Statement of
Changes in Equity
For the six months ended 30 June 2018
£ Millions
|
|
|
|
Attributable to equity holders of the Company |
|
|
|
Note |
Share
capital |
Treasury
shares |
Merger
reserve |
Hedging
reserve |
Translation
reserve |
Other
reserve |
Retained
earnings |
Total |
Non-controlling
interests |
Total
Equity |
Balance at 1 January 2017 |
|
27.2 |
(0.5) |
0.2 |
0.3 |
3.5 |
- |
75.4 |
106.1 |
0.8 |
106.9 |
Sale of treasury shares |
|
- |
0.7 |
- |
- |
- |
- |
(0.3) |
0.4 |
- |
0.4 |
Purchase of treasury shares |
|
- |
(0.2) |
- |
- |
- |
- |
- |
(0.2) |
- |
(0.2) |
Share-based expenses |
|
- |
0.1 |
- |
- |
- |
- |
- |
0.1 |
- |
0.1 |
Dividends paid |
|
- |
- |
- |
- |
- |
- |
(8.0) |
(8.0) |
(0.2) |
(8.2) |
Total comprehensive income for the
period |
|
- |
- |
- |
(0.6) |
(0.9) |
- |
10.9 |
9.4 |
0.3 |
9.7 |
Balance at 30 June
2017
(unaudited) |
|
27.2 |
0.1 |
0.2 |
(0.3) |
2.6 |
- |
78.0 |
107.8 |
0.9 |
108.7 |
Balance at 1 January 2018 |
|
27.2 |
0.4 |
0.2 |
(0.2) |
(0.4) |
(0.8) |
89.6 |
116.0 |
0.9 |
116.9 |
Changes in accounting policy |
15 |
- |
- |
- |
- |
- |
- |
0.4 |
0.4 |
- |
0.4 |
Restated total equity as at 1
January 2018 (unaudited) |
|
27.2 |
0.4 |
0.2 |
(0.2) |
(0.4) |
(0.8) |
90.0 |
116.4 |
0.9 |
117.3 |
Sale of treasury shares |
|
- |
0.7 |
- |
- |
- |
- |
(0.2) |
0.5 |
- |
0.5 |
Share-based expenses |
|
- |
0.3 |
- |
- |
- |
- |
- |
0.3 |
- |
0.3 |
Dividends paid |
|
- |
- |
- |
- |
- |
- |
(9.0) |
(9.0) |
(0.2) |
(9.2) |
Exchange difference arising from
translation of financial statements of foreign operations |
|
- |
- |
- |
- |
1.2 |
- |
- |
1.2 |
0.1 |
1.3 |
Net change in cash flow hedges |
|
- |
- |
- |
0.5 |
- |
- |
- |
0.5 |
- |
0.5 |
Profit for the year |
|
- |
- |
- |
- |
- |
- |
14.6 |
14.6 |
0.1 |
14.7 |
Total comprehensive income for
the period |
|
- |
- |
- |
0.5 |
1.2 |
- |
14.6 |
16.3 |
0.2 |
16.5 |
Balance at 30 June
2018
(unaudited) |
|
27.2 |
1.4 |
0.2 |
0.3 |
0.8 |
(0.8) |
95.4 |
124.5 |
0.9 |
125.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above condensed consolidated
statement of changes in equity should be read in conjunction with
the accompany notes.
XP Power Limited
Condensed Consolidated Statement of
Cash Flows
For the six months ended 30 June 2018
£ Millions |
Note |
Six months
ended
30 June 2018
(Unaudited) |
Six months ended
30 June 2017
(Unaudited) |
Cash flows from operating
activities |
|
|
|
|
|
|
|
Profit after income tax |
|
14.7 |
11.2 |
Adjustments for: |
|
|
|
- Income tax
expense |
|
3.8 |
3.2 |
- Amortisation and
depreciation |
|
3.9 |
2.6 |
- Finance
charge |
|
0.4 |
0.1 |
- Equity award
charges, net of tax |
|
0.3 |
0.1 |
- Fair value
loss/(gain) on derivative financial instruments |
|
0.4 |
(0.6) |
- Unrealised
currency translation loss/(gain) |
|
0.7 |
(0.4) |
|
|
|
|
Change in the working capital, net
of effects from acquisitions: |
|
|
|
- Inventories |
|
(10.1) |
(0.8) |
- Trade and other
receivables |
|
(4.5) |
(1.7) |
- Trade and other
payables |
|
6.1 |
6.1 |
- Provision for
liabilities and other charges |
|
0.1 |
- |
Cash generated from
operations |
|
15.8 |
19.8 |
Income tax paid |
|
(2.4) |
(3.4) |
Net cash provided
by operating activities |
|
13.4 |
16.4 |
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
|
|
|
Acquisition of a business and
subsidiary, net of cash acquired |
13
(b) |
(35.6) |
- |
Purchases and construction of
property, plant and equipment |
|
(2.8) |
(2.0) |
Capitalisation of research and
development expenditure |
6 |
(2.8) |
(2.0) |
Repayment of ESOP loan |
|
0.1 |
0.3 |
Payment of accrued
consideration |
|
- |
(0.5) |
Net cash used in
investing activities |
|
(41.1) |
(4.2) |
|
|
|
|
Cash flows from financing
activities |
|
|
|
|
|
|
|
Proceeds from borrowings |
|
37.3 |
- |
Repayment of borrowings |
|
(3.5) |
(2.7) |
Sale of treasury shares |
|
0.7 |
0.7 |
Purchase of treasury shares by
ESOP |
|
- |
(0.2) |
Interest paid |
|
(0.4) |
- |
Dividends paid to equity holders of
the Company |
|
(9.0) |
(8.0) |
Dividends paid to non-controlling
interests |
|
(0.2) |
(0.2) |
Net cash provided
by/(used in) financing activities |
|
24.9 |
(10.4) |
|
|
|
|
Net (decrease)/increase in cash
and cash equivalents |
|
(2.8) |
1.8 |
Cash and cash equivalents at
beginning of financial period |
|
15.0 |
9.2 |
Effects of currency
translation on cash and cash equivalents |
|
(0.1) |
(0.3) |
Cash and cash
equivalents at end of financial period |
11 |
12.1 |
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£ Millions |
Note |
Six months
ended
30 June 2018
(Unaudited) |
Six months ended
30 June 2017
(Unaudited) |
Reconciliation of
changes in cash and cash equivalents to movement in net
(debt)/cash |
|
|
|
|
|
|
|
Net (decrease)/increase
in cash and cash equivalents |
|
(2.8) |
1.8 |
Proceeds from
borrowings |
|
(37.3) |
- |
Repayment of
borrowings |
|
3.5 |
2.7 |
Effects of currency
translation |
|
(0.9) |
(0.2) |
Movement in net
(debt)/cash |
|
(37.5) |
4.3 |
Net (debt)/cash at
beginning of financial period |
|
(9.0) |
3.7 |
Net (debt)/cash at end
of financial period |
|
(46.5) |
8.0 |
|
|
|
|
|
Reconciliation of liabilities arising
from financing activities
£ Millions
|
1 January 2018 |
Principal and interest payments |
Proceeds from borrowings |
Non-cash changes |
30 June 2018 |
|
Acquisition |
Interest expense |
Foreign exchange movement |
Bank borrowings |
24.0 |
(3.9) |
37.3 |
- |
0.4 |
0.8 |
58.6 |
The above condensed consolidated
statement of cash flows should be read in conjunction with the
accompany notes.
XP Power Limited
Notes to the condensed consolidated
financial statements
1. General
information
XP Power Limited (the
“Company”) is listed on the London Stock Exchange and incorporated
and domiciled in Singapore. The address of its registered
office is 401 Commonwealth Drive, Lobby B #02-02, Haw Par
Technocentre, Singapore
149598.
The nature of the Group’s
operations and its principal activities is to provide power supply
solutions to the electronics industry.
These condensed
consolidated interim financial statements are presented in Pounds
Sterling (GBP).
2. Basis of
preparation
The condensed consolidated
interim financial statements for the period ended 30 June 2018 have been prepared in accordance
with the Disclosure and Transparency Rules of the United Kingdom’s
Financial Conduct Authority and with International Accounting
Standards (“IAS”) 34 Interim Financial Reporting as adopted
by the European Union.
The condensed consolidated
interim financial statements should be read in conjunction with the
annual financial statements for the year ended 31 December 2017 which have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union.
3. Going
Concern
The directors, after making enquiries, are of the view, as at
the time of approving the financial statements, that there is a
reasonable expectation that the Group will have adequate resources
to continue operating for the foreseeable future and therefore the
going concern basis has been adopted in preparing these financial
statements.
4. Accounting
policies
The condensed consolidated
interim financial statements have been prepared under the
historical cost convention except for the fair value of derivatives
in accordance with IFRS 9 Financial Instruments.
The same accounting
policies, presentation and methods of computation are followed in
these condensed consolidated interim financial statements as were
applied in the presentation of the Group’s financial statements for
the year ended 31 December 2017
except for the adoption of new and amended standards as set out
below.
New and amended standards
adopted by the Group
A number of new or amended standards became applicable for the
current reporting period and the
Group had to change its accounting policies and make modified
retrospective adjustments as a result of adopting the following
standards;
· IFRS 9 Financial
Instruments; and
· IFRS 15 Revenue from
Contracts with Customers.
The impact of the adoption
of these standards and the new accounting policies are disclosed in
note 15. The other standards did not have any impact on the Group’s
accounting policies and did not require retrospective
adjustments.
5. Segmented and
revenue information
The Group operates
substantially in one class of business, the provision of power
control solutions to the electronics industry. Analysis of total
Group operating profit, total assets, total revenue and total Group
profit before taxation by geographical region is set out below.
Total
Revenue |
|
|
|
|
|
|
|
|
|
Six months ended 30
June 2018 |
|
|
|
|
£ Millions |
|
|
|
|
|
Europe |
North
America |
Asia |
Total |
Primary
geographical markets |
|
|
|
|
Semiconductor
Manufacturing |
0.2 |
24.2 |
0.5 |
24.9 |
Technology |
2.9 |
5.6 |
0.5 |
9.0 |
Industrial |
21.0 |
14.0 |
4.1 |
39.1 |
Healthcare |
5.6 |
13.2 |
1.4 |
20.2 |
|
29.7 |
57.0 |
6.5 |
93.2 |
|
|
|
|
|
Major goods/service
lines |
|
|
|
|
AC-DC Power
Supplies |
24.0 |
42.2 |
5.2 |
71.4 |
DC-DC Supplies |
4.6 |
3.1 |
0.5 |
8.2 |
High Voltage Low
Power |
0.9 |
3.1 |
0.6 |
4.6 |
High Voltage High
Power |
0.1 |
1.0 |
- |
1.1 |
RF Power Supplies |
- |
7.6 |
- |
7.6 |
Others |
0.1 |
- |
0.2 |
0.3 |
|
29.7 |
57.0 |
6.5 |
93.2 |
|
|
|
|
|
Six months ended 30
June 2017 |
|
|
|
|
£ Millions |
|
|
|
|
|
Europe |
North
America |
Asia |
Total |
Primary
geographical markets |
|
|
|
|
Semiconductor
Manufacturing |
0.1 |
11.8 |
0.9 |
12.8 |
Technology |
3.3 |
3.7 |
1.7 |
8.7 |
Industrial |
21.5 |
15.3 |
2.3 |
39.1 |
Healthcare |
4.5 |
12.9 |
2.2 |
19.6 |
|
29.4 |
43.7 |
7.1 |
80.2 |
|
|
|
|
|
Major goods/service
lines |
|
|
|
|
AC-DC Power
Supplies |
23.7 |
36.5 |
5.6 |
65.8 |
DC-DC Supplies |
4.8 |
2.6 |
0.7 |
8.1 |
High Voltage Low
Power |
0.7 |
4.2 |
0.3 |
5.2 |
High Voltage High
Power |
- |
- |
- |
- |
RF Power Supplies |
- |
- |
- |
- |
Others |
0.2 |
0.4 |
0.5 |
1.1 |
|
29.4 |
43.7 |
7.1 |
80.2 |
|
|
|
|
|
5. Segmented and
revenue information (continued)
£ Millions |
Six months
ended
30 June 2018
(Unaudited) |
Six months ended
30 June 2017 (Unaudited) |
Total
assets |
|
|
Europe |
29.8 |
29.0 |
North America |
118.6 |
58.0 |
Asia |
70.2 |
56.1 |
Segment assets |
218.6 |
143.1 |
Unallocated deferred and current
income tax |
3.9 |
0.4 |
Total assets |
222.5 |
143.5 |
Reconciliation of operating
profit by segment to profit after income tax:
£ Millions |
Six months
ended
30 June 2018
(Unaudited) |
Six months ended
30 June 2017 (Unaudited) |
|
|
|
Europe |
8.2 |
7.7 |
North America |
16.0 |
14.5 |
Asia |
1.8 |
1.1 |
Operating profit by
segment |
26.0 |
23.3 |
Research and development |
(5.2) |
(4.7) |
Finance charge |
(0.4) |
(0.1) |
Corporate recovery from operating
segment |
(1.9) |
(4.1) |
Profit before income tax |
18.5 |
14.4 |
Income tax expense |
(3.8) |
(3.2) |
Profit after income tax |
14.7 |
11.2 |
The Group operates in the
following regions and countries:
£ Millions |
Six months
ended
30 June 2018
(Unaudited) |
Six months ended
30 June 2017 (Unaudited) |
Revenue |
|
|
North America |
57.0 |
43.7 |
United Kingdom |
14.7 |
15.0 |
Singapore |
5.7 |
6.0 |
Germany |
7.5 |
6.6 |
Switzerland |
1.3 |
1.5 |
Other countries |
7.0 |
7.4 |
Total revenue |
93.2 |
80.2 |
There is one external
customer (2017: one) that represents 10% or more of the Group’s
total revenue. Revenues of £15.0 million (2017: £8.0 million) are
derived from that customer. These revenues are attributable to the
semiconductor manufacturing segment.
5. Segmented and
revenue information (continued)
Reconciliation of adjusted
measures
The Group presents adjusted operating profit and adjusted profit
before tax by making adjustments for costs and profits which
management believes to be significant by virtue of their size,
nature or incidence or which have a distortive effect on current
year earnings. Such items may include, but are not limited to,
costs associated with business combinations, gains and losses on
the disposal of businesses, fair value movements, exceptional
operating costs, and amortisation of intangible assets arising on
business combinations. Exceptional operating costs include
reorganisation costs, acquisition related charges and similar items
of a significant and a non-recurring nature.
In addition, the Group presents an adjusted profit after tax
measure by making adjustments for certain tax charges and credits
which management believe to be significant by virtue of their size,
nature or incidence or which have a distortive effect.
The Group uses these adjusted measures to evaluate performance
and as a method to provide shareholders with clear and consistent
reporting. See below for a reconciliation of operating profit to
adjusted operating profit and a reconciliation of profit before tax
to adjusted profit before tax
(i) A reconciliation of operating profit to adjusted
operating profit is as follows:
£
Millions |
2018 |
2017 |
Operating Profit |
18.9 |
14.5 |
|
|
|
Adjusted for: |
|
|
Acquisition costs |
0.4 |
2.8 |
Amortisation of
intangible assets |
1.0 |
0.1 |
Changes in accounting
policy |
0.4 |
- |
|
1.8 |
2.9 |
Adjusted Operating
Profit |
20.7 |
17.4 |
|
|
|
Adjusted Operating
Margin |
22.2% |
21.7% |
|
|
|
(ii) A
reconciliation of profit before income tax to adjusted profit
before tax is as follows:
Profit before income
tax (“PBT”) |
18.5 |
14.4 |
|
|
|
Adjusted for: |
|
|
Acquisition costs |
0.4 |
2.8 |
Amortisation of
intangible assets |
1.0 |
0.1 |
Changes in accounting
policy |
0.4 |
- |
|
1.8 |
2.9 |
Adjusted
PBT |
20.3 |
17.3 |
6. Expenses by nature
£ Millions |
Six months
ended
30 June 2018
(Unaudited)
|
Six months ended
30 June 2017
(Unaudited) |
|
|
|
Profit for the period is after
charging/(crediting): |
|
|
|
|
|
Amortisation of
intangible assets |
2.4 |
1.3 |
Depreciation of property, plant and
equipment |
1.5 |
1.3 |
Foreign exchange loss/(gain) |
0.3 |
(0.4) |
(Gain)/loss on foreign exchange
forwards |
(0.2) |
0.2 |
Raw materials and
inventories used |
29.3 |
36.9 |
Changes in inventories |
12.8 |
0.8 |
Fee payable to the Group’s auditor
for audit of the Group’s accounts |
0.2 |
0.2 |
Tax fees payable to other firms for
services provided to the Group |
0.1 |
- |
Rent/lease expense |
0.8 |
0.8 |
Finance charge |
0.4 |
0.1 |
Other charges |
27.1 |
24.6 |
Total |
74.7 |
65.8 |
Included in the above is net research and development
expenditure as follows:
£ Millions |
Six months
ended
30 June 2018
(Unaudited)
|
Six months ended
30 June 2017
(Unaudited) |
|
|
|
Gross research and development
expenditure |
6.6 |
5.5 |
Capitalisation of research and
development expenditure |
(2.8) |
(2.0) |
Amortisation of development
expenditure capitalised |
1.4 |
1.2 |
Net research and development
expenditure |
5.2 |
4.7 |
7. Taxation
Income tax expense is recognised
based on management’s best estimate of the weighted average annual
income tax expected for the full financial year. The estimated
effective annual tax rate used for 2018 is 20.5% (2017: 22.2%).
£ Millions |
Six months
ended
30 June 2018
(Unaudited) |
Six months ended
30 June 2017
(Unaudited) |
|
|
|
Singapore corporation tax |
2.2 |
2.2 |
Overseas corporation tax |
1.6 |
1.0 |
Total taxation |
3.8 |
3.2 |
8. Dividends
Amounts recognised as
distributions to equity holders of the Company in the period:
|
Six
months ended
30 June 2018
(Unaudited) |
Six
months ended
30 June 2017
(Unaudited) |
|
Pence per
share |
£ Millions |
Pence per
share |
£ Millions |
|
|
|
|
|
Prior year 3rd quarter
dividend paid |
18.0 |
3.4 |
16.0 |
3.0 |
Prior year final dividend paid |
29.0 |
5.6 |
26.0 |
5.0 |
Total |
47.0 |
9.0 |
42.0 |
8.0 |
The dividends paid recognised in the interim financial
statements relate to the third quarter and final dividends for
2017.
The first quarterly dividend of 16.0
pence per share (2017: 15.0
pence per share) was paid on 11 July
2018. A second quarterly dividend of 17.0 pence per share (2017: 16.0 pence per share) will be paid on
11 October 2018 to shareholders on
the register at 14 September
2018.
9. Earnings per
share
Earnings per share attributable
to equity holders of the company arise from continuing operations
as follows:
£ Millions |
Six months
ended
30 June 2018
(Unaudited) |
Six months ended
30 June 2017
(Unaudited) |
Earnings |
|
|
Earnings for the purposes of basic
and diluted earnings per share (profit for the period attributable
to equity shareholders of the company) |
14.6 |
10.9 |
Amortisation of intangibles
associated with acquisitions |
1.0 |
0.1 |
Cost associated with acquisitions
(2017: acquisitions, completed and aborted) |
0.4 |
2.8 |
Tax deduction associated with
acquisitions (2017: acquisitions, completed and aborted) |
(0.1) |
(0.8) |
Changes in accounting policy |
0.4 |
- |
Earnings for adjusted earnings
per share |
16.3 |
13.0 |
Number of shares |
|
|
Weighted average number of shares
for the purposes of basic earnings per share (thousands) |
19,114 |
19,052 |
|
|
|
Effect of potentially dilutive share
options (thousands) |
369 |
274 |
|
|
|
Weighted average number of shares
for the purposes of dilutive earnings per share (thousands) |
19,483 |
19,326 |
|
|
|
Earnings per share from
operations |
|
|
Basic |
76.4p |
57.2p |
Diluted |
74.9p |
56.4p |
Diluted adjusted |
83.7p |
67.3p |
The effective tax rate applied to
derive the diluted adjusted earnings per share is 18.7%. This is
the rate we currently expect for the year ending 31 December 2018.
10. Intangible assets
Intangible assets comprises trademarks, brand and technology,
customer contracts, non-contractual customer relationships and
development expenditure capitalised when it meets the criteria laid
out in IAS 38 Intangible Assets.
|
Development costs |
Trademarks |
Brand
and Technology |
Customer
relationships |
Customer contracts |
Total |
£ Millions |
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
At 1 January 2017 |
25.0 |
1.0 |
0.7 |
0.7 |
0.1 |
27.5 |
Additions |
2.0 |
- |
- |
- |
- |
2.0 |
Foreign currency
translation |
(0.4) |
- |
0.1 |
- |
- |
(0.3) |
At 30 June
2017 |
26.6 |
1.0 |
0.8 |
0.7 |
0.1 |
29.2 |
At 1 January 2018 |
29.0 |
1.0 |
2.4 |
5.5 |
0.4 |
38.3 |
Additions |
2.8 |
- |
- |
- |
- |
2.8 |
Acquisition of
business |
- |
- |
2.4 |
8.9 |
0.3 |
11.6 |
Foreign currency
translation |
0.3 |
- |
0.1 |
0.2 |
- |
0.6 |
At 30 June
2018 |
32.1 |
1.0 |
4.9 |
14.6 |
0.7 |
53.3 |
Amortisation |
|
|
|
|
|
|
At 1 January 2017 |
10.8 |
1.0 |
0.1 |
0.2 |
0.1 |
12.2 |
Charge for the
year |
1.2 |
- |
- |
0.1 |
- |
1.3 |
Foreign currency
translation |
(0.1) |
(0.1) |
0.1 |
(0.1) |
- |
(0.2) |
At 30 June
2017 |
11.9 |
0.9 |
0.2 |
0.2 |
0.1 |
13.3 |
At 1 January 2018 |
13.0 |
0.9 |
0.2 |
0.5 |
0.2 |
14.8 |
Charge for the
year |
1.4 |
- |
0.2 |
0.7 |
0.1 |
2.4 |
Foreign currency
translation |
0.1 |
- |
0.1 |
- |
- |
0.2 |
At 30 June
2018 |
14.5 |
0.9 |
0.5 |
1.2 |
0.3 |
17.4 |
Carrying amount |
|
|
|
|
|
|
At 30 June
2018 |
17.6 |
0.1 |
4.4 |
13.4 |
0.4 |
35.9 |
At 30 June 2017 |
14.7 |
0.1 |
0.6 |
0.5 |
- |
15.9 |
11. Cash and cash
equivalents
For the purpose of presenting the consolidated cash flow
statement, the consolidated cash and cash equivalents comprise the
following:
£ Millions |
Six months
ended
30 June 2018
(Unaudited)
|
Six months ended
30 June 2017
(Unaudited) |
|
|
|
Cash and bank balances |
12.1 |
11.3 |
Less: Bank
overdrafts |
- |
(0.6) |
Cash and cash equivalents per
consolidated cash flow statement |
12.1 |
10.7 |
|
|
|
Reconciliation to free cash
flow: |
|
|
|
|
|
Net cash provided by operating
activities |
13.4 |
16.4 |
Purchases and construction of
property, plant and equipment |
(2.8) |
(2.0) |
Capitalisation of research and
development expenditure |
(2.8) |
(2.0) |
Interest paid |
(0.4) |
- |
Free cash
flow |
7.4 |
12.4 |
12. Borrowings, bank loans
and overdraft
£ Millions |
30 June 2018
(Unaudited) |
31 December 2017 |
30 June 2017 (Unaudited) |
Non-current |
58.6 |
24.0 |
- |
Current |
- |
- |
3.3 |
Total |
58.6 |
24.0 |
3.3 |
The Group entered into a new revolving credit facility of
US$40.0 million with a US$20.0 million additional accordion option with
HSBC and Fifth Third Bank on 27 September
2017. In May 2018, the Group
increased the revolving credit facility to US$85.0 million with a US$20.0 million additional accordion option. The
facility has no fixed repayment terms until maturity. The revolving
loan is priced at LIBOR plus a margin of 1% for the utilisation
facility and a margin of 0.4% for the unutilised facility.
13. Business
combination
On 25 May 2018, the Group acquired
the assets and business of Glassman High Voltage Inc.. The
principal activity of Glassman High Voltage Inc. is that of a
designer and manufacturer of high voltage, high power, power
supplies. In addition, the acquisition also includes the purchase
of Glassman’s small European sales business (XP Glassman Europe
Limited formerly known as Glassman Europe Limited). The Group made
the acquisition because Glassman and the Group share several
customers, and while there is no direct overlap in product lines,
the power supply solutions of the two companies are highly
complementary. Glassman’s products and engineering capabilities
will enhance the Group's ability to implement its strategy of
winning a greater share of business from its largest customers by
achieving wider vertical penetration of key accounts. As well as a
product offering suitable for an array of applications used by some
of the Group's existing customer base, Glassman will also bring a
number of new customers to the Group.
Details of the consideration paid for the assets and business,
the assets acquired and liabilities assumed and the effects on the
cash flows of the Group, at the acquisition date, are as
follows:
13. Business combination
(continued)
|
|
|
£
Millions |
(a) |
Purchase
consideration |
|
|
|
Cash Paid |
|
35.8 |
|
Total Purchase
consideration |
|
35.8 |
|
Consideration transferred for the business and
subsidiary |
35.8 |
|
|
|
|
(b) |
Effect on cash flows
of the Group |
|
|
|
Cash paid (as
above) |
|
35.8 |
|
Less cash
and cash equivalents in the subsidiary acquired |
(0.2) |
|
Cash outflow on
acquisition |
|
35.6 |
|
|
|
|
(c) |
Assets acquired and
liabilities assumed based on provisional |
|
|
|
fair value |
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
0.2 |
|
Property, plant and
equipment |
|
3.6 |
|
Technology, Customer
relationships, Contracts and Brands |
|
11.6 |
|
Inventories |
|
2.7 |
|
Trade and other
receivables |
|
2.7 |
|
Total
assets |
|
20.8 |
|
|
|
|
|
Trade and other
payables |
|
0.5 |
|
Total
liabilities |
|
0.5 |
|
|
|
|
|
Total net
assets |
|
20.3 |
|
|
|
|
|
Add: Goodwill |
|
15.5 |
|
Consideration transferred for the business and
subsidiary |
35.8 |
|
|
|
(d) |
Acquisition-related costs |
|
|
Acquisition-related costs of £0.3 million are included in
“administrative expenses” in the consolidated statement of
comprehensive income. |
|
|
|
(e) |
Acquired
receivables |
|
|
|
The fair
value of trade receivables is £2.7 million and all of which is
expected to be collected. |
|
|
|
|
(f) |
Fair values |
|
|
|
The fair
value of the acquired identifiable intangible assets of £11.6
million (brand, technology, customers’ relationships and contracts)
has been provisionally determined pending final valuations for
those assets. |
|
|
|
|
(g) |
Goodwill |
|
|
|
The
goodwill of £15.5 million arising from the acquisition is
attributable to the distribution network in America and Europe and
the synergies expected to arise from the economies of scale in
combining the operations of the Group with those of Glassman High
Voltage Inc. and XP Glassman Europe Limited. |
|
|
(h) |
Revenue and profit
contribution |
|
|
|
The
acquired business and subsidiary contributed revenue of £1.2
million and net profit of £0.3 million to the Group from the period
25 May 2018 to 30 June 2018. Had Glassman High Voltage Inc. and XP
Glassman Europe Limited been consolidated from 1 January 2018,
consolidated revenue and consolidated profit before tax for the
period ended 30 June 2018 for the Group would have been £99.6
million and £20.0 million respectively. |
|
|
|
|
14. Currency Impact
We report in Pounds Sterling (GBP) but have significant revenues
and costs as well as assets and
liabilities that are denominated in United States Dollars (USD). The table below
sets out the prevailing
exchange rates in the periods reported.
|
First half 2018 |
First half 2017 |
%
Change |
30 June 2018 |
31 December 2017 |
30 June 2017 |
|
Average |
Average |
|
Period end |
Period end |
Period end |
|
|
|
|
|
|
|
USD/GBP |
1.39 |
1.26 |
10.3% |
1.32 |
1.34 |
1.27 |
EUR/GBP |
1.14 |
1.17 |
-2.6% |
1.14 |
1.13 |
1.14 |
Approximately 82% of the Group’s revenues are invoiced in USD so
the change in the USD to GBP exchange rate has a significant effect
on reported revenue in GBP. However, as the majority of our cost of
goods sold and operating expenses are also denominated in USD, the
change in profit before tax with the USD to GBP exchange rate is
relatively minor. The impact of changes in the key exchange rates
from the first half of 2017 to the first half of 2018 are
summarised as follows:
£ Millions |
USD |
EUR |
|
|
|
Impact on
revenues |
(7.9) |
0.2 |
Impact on
profit before tax |
(1.6) |
- |
Impact on
net debt |
(0.3) |
- |
|
|
|
15. Changes in accounting
policies
This note explains the impact of the adoption of IFRS 9
Financial Instruments and IFRS 15 Revenue from Contracts
with Customers on the Group’s financial statements and also
discloses the new accounting policies that have been applied from
1 January 2018, where they are
different to those applied in prior periods.
(a) Impact on the financial
statements
As a result of the changes in the Group’s accounting policies,
we have adopted IFRS 9 and IFRS 15 using the modified retrospective
transition method and recognised the transition adjustments in the
opening balance sheet. The following table shows the adjustments
recognised for each individual line item.
£ Millions |
Note |
At
31
December
2017 |
Effects of
IFRS 9 |
Effects of
IFRS 15 |
At
1
January 2018
Restated |
ASSETS |
|
|
|
|
|
Trade receivables |
|
23.8 |
0.4 |
* |
24.2 |
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Retained earnings |
|
89.6 |
0.4 |
* |
90.0 |
* Balances are less than £100,000.
15. Changes in accounting
policies (continued)
(b) IFRS 9 Financial
Instruments - Impact of adoption
IFRS 9 replaces the provisions of IAS 39 that relate to
recognition, classification and measurement of financial assets and
financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting.
The adoption of IFRS 9 Financial Instruments from
1 January 2018 resulted in changes in
accounting policies and adjustments to the amounts recognised in
the financial statements. The new accounting policies are set out
in note (c) below. In accordance with the transitional provisions
in IFRS 9, comparative figures have not been restated.
Please refer to note 15(a) for the total impact on the Group’s
retained earnings as at 1 January
2018.
(i) Classification and
measurement
On 1 January 2018 (the date of
initial application of IFRS 9), management has applied the Business
Model test and Solely Payment of Principals and Interests (“SPPI”)
test to the financial assets held by the Group.
The following table and the accompanying notes below explain the
original measurement categories under IAS 39 and the new
measurement categories under IFRS 9 for each class of the Group’s
financial assets as at 1 January
2018.
|
Original classification under IAS 39 |
New classification under IFRS 9 |
Original carrying amount under IAS 39 |
New carrying amount under IFRS 9 |
in £ Millions |
Financial
assets |
|
|
|
|
Cash and cash
equivalents |
Loans
and receivables |
Amortized cost |
15.0 |
15.0 |
Trade receivables |
Loans
and receivables |
Amortized cost |
23.8 |
24.2 |
Other current
assets |
Loans
and receivables |
Amortized cost |
1.8 |
1.8 |
Derivative financial
instruments |
Held-for-trading |
Mandatorily at Fair Value through Profit or Loss (“FVPL”) |
0.2 |
0.2 |
ESOP Loan to
employees |
Loans
and receivables |
Amortized cost |
0.3 |
0.3 |
(a) Cash and cash equivalents, trade receivables, other
current assets (exclude prepayment) and ESOP loan to employees were
classified as loans and receivables under IAS 39 are now classified
at amortised cost. There was no impact on the amounts recognised in
relation to these assets except for trade receivables from the
adoption of IFRS 9.
(b) Derivative financial instruments that were previously
held for trading are required to be held as FVTPL under IFRS 9.
There was no impact on the amounts recognised in relation to these
assets from the adoption of IFRS 9.
15. Changes in accounting policies
(continued)
(b) IFRS 9 Financial
Instruments - Impact of adoption (continued)
(ii) Derivatives and
hedging activities
Foreign currency forward contracts in place as at 31 December 2017 were entered into hedge
exchange rate movements of highly probable future sales and
qualify as cash flow hedges under
IFRS 9.
The Group’s risk management strategies and hedge documentation
are aligned with the requirements of IFRS 9 and these relationships
are therefore treated as continuing hedges.
There have been no changes to the recognition and measurement of
derivatives and hedging activities under IFRS 9.
(iii) Impairment of financial
assets
The Group’s financial assets that are subject to IFRS 9’s new
expected credit loss model is trade receivables.
The Group was required to revise its impairment methodology
under IFRS 9 for trade receivables. The impact of the change in
impairment methodology is disclosed in the table in note 15(a).
The Group applies the IFRS 9 simplified approach to measuring
expected credit loss which uses a lifetime expected loss allowance
for all trade receivables.
To measure the expected credit losses, it is based on the
Group's two years historical credit loss experience across all
regions and set up a provision matrix using the amount of bad debt
incurred over the carrying value of the trade receivables per aging
brackets at each financial year end.
On that basis, the loss allowance as at 1
January 2018 was determined as follows for the trade
receivables.
North
America region
1 January
2018 |
More
than 60 days past due |
More
than 90 days past due |
More
than 120 days past due |
Total |
Expected loss rate
(%) |
5 |
20 |
25 |
|
|
|
|
|
|
Gross carrying amount
(£ Millions) |
0.3 |
0.2 |
0.1 |
0.6 |
|
|
|
|
|
Loss allowance (£
Millions) |
* |
* |
* |
* |
Europe region
1 January
2018 |
More
than 60 days past due |
More
than 90 days past due |
More
than 120 days past due |
Total |
Expected loss rate
(%) |
5 |
20 |
35 |
|
|
|
|
|
|
Gross carrying amount
(£ Millions) |
* |
* |
0.2 |
0.2 |
|
|
|
|
|
Loss allowance (£
Millions) |
* |
* |
0.1 |
0.1 |
* Balances are less than £100,000.
15. Changes in accounting
policies (continued)
(b) IFRS 9 Financial
Instruments - Impact of adoption (continued)
(iii) Impairment of financial
assets (continued)
Asia
region
1 January
2018 |
More
than 60 days past due |
More
than 90 days past due |
More
than 120 days past due |
Total |
Expected loss rate
(%) |
0 |
0 |
0 |
|
|
|
|
|
|
Gross carrying amount
(£ Millions) |
0.1 |
* |
* |
0.1 |
|
|
|
|
|
Loss allowance (£
Millions) |
- |
- |
- |
- |
* Balances are less than £100,000.
The loss allowances for trade receivables as at 31 December 2017 reconcile to the opening loss
allowances on 1 January 2018 as
follows:
|
Trade
receivables |
|
£'million |
At 31 December 2017 -
calculated under IAS 39 |
0.5 |
Amounts restated
through opening retained earnings |
(0.4) |
Opening loss allowance
as at 1 January 2018 - calculated under IFRS 9 |
0.1 |
There have been no significant changes to the expected loss rate
as at 30 June 2018.
(c) IFRS 9 Financial
Instruments – Accounting policies applied from 1 January 2018
(i) Financial
Assets
Classification
From 1 January 2018, the group
classifies its financial assets in the following measurement
categories
· those to be measured at amortised cost, and
· those to be measured subsequently at fair value (either
through other comprehensive income, or through profit or loss).
The classification depends on the Group’s business model and
SPPI for managing the financial assets as well as the contractual
terms of the cash flows of the financial assets.
For assets measured at fair value, gains and losses will either
be recorded in profit or loss or other comprehensive income.
15. Changes in accounting
policies (continued)
(c) IFRS 9 Financial
Instruments – Accounting policies applied from 1 January 2018 (continued)
(i) Financial
Assets (continued)
Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at fair value through profit or
loss are expensed in profit or loss.
At subsequent measurement
Debt instruments
There are three subsequent measurement categories, depending on
the Group’s business model for managing the asset and the cash flow
characteristics of the asset:
Amortised cost: Debt instruments that are held for collection of
contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost.
A gain or loss on a debt investment that is subsequently measured
at amortised cost and is not part of a hedging relationship is
recognised in profit or loss when the asset is derecognised or
impaired. Interest income from these financial assets is included
in finance income using the effective interest rate method.
Fair Value through Other Comprehensive Income (“FVOCI”): Debt
instruments that are held for collection of contractual cash flows
and for sale, and where the assets’ cash flows represent solely
payments of principal and interest, are classified as FVOCI.
Movements in fair values are recognised in Other Comprehensive
Income (“OCI”) and accumulated in fair value reserve, except for
the recognition of impairment gains or losses, interest income and
foreign exchange gains and losses, which are recognised in profit
and loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from
equity to profit or loss and presented in “other gains/(losses)”.
Interest income from these financial assets is recognised using the
effective interest rate method and presented in “interest
income”.
FVPL: Debt instruments that are held for trading as well as
those that do not meet the criteria for classification as amortised
cost or FVOCI are classified as FVPL. Movement in fair values and
interest income that is not part of a hedging relationship is
recognised in profit or loss in the period in which it arises and
presented in “other gains/(losses)”.
Impairment
The Group applies the IFRS 9 simplified approach to measuring
expected credit loss which uses a lifetime expected loss allowance
for all trade receivables.
15. Changes in accounting
policies (continued)
(c) IFRS 9 Financial
Instruments – Accounting policies applied from 1 January 2018
(continued)
(ii) Derivatives and
hedging
Cash
flow hedges that qualify for hedge accounting
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow hedges is
recognised in the cash flow hedge reserve within equity. The gain
or loss relating to the ineffective portion is recognised
immediately in statement of comprehensive income.
When currency forwards are used to hedge forecast transactions,
the group generally designates only the change in fair value of the
forward contract related to the spot component as the hedging
instrument. Gains or losses relating to the effective portion of
the change in the spot component of the forward contracts are
recognised in the cash flow hedge reserve within equity. The change
in the forward element of the contract that relates to the hedged
item (‘aligned forward element’) is recognised within OCI in the
costs of hedging reserve within equity. In some cases, the entity
may designate the full change in fair value of the forward contract
(including forward points) as the hedging instrument. In such
cases, the gains or losses relating to the effective portion of the
change in fair value of the entire forward contract are recognised
in the cash flow hedge reserve within equity.
When a hedging instrument expires, or is sold or terminated, or
when a hedge no longer meets the criteria for hedge accounting, any
cumulative deferred gain or loss and deferred costs of hedging in
equity at that time remains in equity until the forecast
transaction occurs, resulting in the recognition of a non-financial
asset such as inventory. When the forecast transaction is no longer
expected to occur, the cumulative gain or loss and deferred costs
of hedging that were reported in equity are immediately
reclassified to profit or loss.
(d) IFRS 15 Revenue from Contracts with
Customers – Accounting policies applied from 1 January 2018
The Group has adopted IFRS 15 Revenue from Contracts with
Customers from 1 January 2018
which resulted in changes in accounting policies and adjustments to
the amounts recognised in the financial statements. In accordance
with the transition provisions in IFRS 15, the Group has adopted
the modified retrospective transition method. Please refer to note
15(a) for the total impact on the Group’s retained earnings as at
1 January 2018.
In accordance with the new revenue standard requirements, the
disclosure of the impact of adoption on our consolidated income
statement and balance sheet was less than £0.1 million as at
1 January 2018.
(i)
Accounting for sales discounts
When there is a sale of goods, the customers will be entitled to
early repayment discount which is based on the agreed discount rate
and early repayment terms. The Group previously recognised the
sales discounts when the customers made the payment.
15. Changes in accounting
policies (continued)
(d) IFRS 15 Revenue from
Contracts with Customers – Accounting policies applied from
1 January 2018 (continued)
(i) Accounting for
sales discounts (continued)
Under IFRS 15, if the consideration promised in a contract
includes a variable amount, an entity shall estimate the amount of
consideration to which the entity will be entitled in exchange for
transferring the promised goods or services to a customer.
An entity shall estimate an amount of variable consideration by
using either of the following methods, depending on which method
the entity expects to better predict the amount of consideration to
which it will be entitled:
(a) The expected value—the expected value is the sum of
probability-weighted amounts in a range of possible consideration
amounts. An expected value may be an appropriate estimate of the
amount of variable consideration if an entity has a large number of
contracts with similar characteristics.
(b) The most likely amount—the most likely amount is the
single most likely amount in a range of possible consideration
amounts (i.e. the single most likely outcome of the contract). The
most likely amount may be an appropriate estimate of the amount of
variable consideration if the contract has only two possible
outcomes.
The Group is using the most likely amount approach as there will
be only 2 possible outcomes, either the customers make the payment
and receive the discount or pay after the early payment date and
don’t receive the discount. The Group recognised the sales
discounts assuming all customers eligible for the discount make
payment by the early payment date. The impact is less than £0.1
million for 1H 2018.
(ii) Accounting for sales
volume rebates
When there is a sale of goods, certain customers will be
entitled to sale volume rebate which is based on total spending
multiplied by the agreed rebates percentage. The Group previously
recognised the sales rebates based on billings to date.
Under IFRS 15, if the consideration promised in a contract
includes a variable amount, an entity shall estimate the amount of
consideration to which the entity will be entitled in exchange for
transferring the promised goods or services to a customer.
An entity shall estimate an amount of variable consideration by
using either of the following methods, depending on which method
the entity expects to better predict the amount of consideration to
which it will be entitled:
(a) The expected value—the expected value is the sum of
probability-weighted amounts in a range of possible consideration
amounts. An expected value may be an appropriate estimate of the
amount of variable consideration if an entity has a large number of
contracts with similar characteristics.
(b) The most likely amount—the most likely amount is the
single most likely amount in a range of possible consideration
amounts (i.e. the single most likely outcome of the contract). The
most likely amount may be an appropriate estimate of the amount of
variable consideration if the contract has only two possible
outcomes.
The Group is using the expected value approach as there is a
range of possible consideration amounts depending on the sales
volume which in turn will affect amount of rebates. The Group
estimates the rebate percentage that the participating customers
will be eligible for by the end of the rebate programme year and
applies that rebate percentage to the billings to date. £0.2
million of accrual rebates has been accounted for in 1H 2018.
15. Changes in accounting
policies (continued)
(e) IFRS 15 Revenue from
Contracts with Customers – Accounting policies
(i) Sale of
goods
The Group manufactures and sells a range of power products.
Sales are recognised when control of the products has transferred
to its customer, being when the products are delivered to the
buyer, the buyer has full discretion over the channel and price to
sell the products, and there is no unfulfilled obligation that
could affect the buyer’s acceptance of the products. Delivery
occurs when the products have been shipped to the specific
location, the risks of obsolescence and loss have been transferred
to the buyer, and either the buyer has accepted the products in
accordance with the sales contract, the acceptance provisions have
lapsed, or the Group has objective evidence that all criteria for
acceptance have been satisfied.
Power products are sometimes sold with volume discounts based on
aggregate sales over a 12 months period or sales discounts if the
customers made early repayment. Revenue from these sales is
recognised based on the price specified in the contract.
Accumulated experience is used to estimate and provide for the
volume discounts, using the expected value method, and sales
discounts, using most likely approach and revenue is only
recognised to the extent that it is highly probable that a
significant reversal will not occur. No element of financing is
deemed present as the sales are made with a credit term of 30 days,
which is consistent with market practice. The group will usually
issue a credit note for refund for faulty products.
A receivable (financial asset) is recognised when the goods are
delivered as this is the point in time that the consideration is
unconditional because only the passage of time is required before
payment is due.
Volume rebates and early payment discounts are recognised when
the goods are delivered and is presented as a reduction in trade
and other receivables.
(ii) Interest income
Interest income is recognised using the effective interest
method.
Risks and uncertainties
Like many other international businesses, the Group is exposed
to a number of risks and uncertainties which might have a material
effect on its financial performance. These include:
An event that
causes a disruption to one of our manufacturing facilities
An event that results in the temporary or permanent loss of a
manufacturing facility would be a serious issue. As the Group
manufactures 78% of revenues, this would undoubtedly cause at least
a short-term loss of revenues and profits and disruption to our
customers and therefore damage to reputation.
Product recall
A product recall due to a quality or safety issue would have
serious repercussions to the business in terms of potential cost
and reputational damage as a supplier to critical systems.
Shortage,
non-availability or technical fault with regard to key electronic
components
The Group is reliant on the supply, availability and reliability
of key electronic components. If there is a shortage,
non-availability or technical fault with any of the key electronic
components this may impair the Group’s ability to operate its
business efficiently and lead to potential disruption to its
operations and revenues.
Competition from
new market entrants and new technologies
The power supply market is diverse and competitive. The
Directors believe that the development of new technologies could
give rise to significant new competition to the Group, which may
have a material effect on its business. At the lower end of the
Group’s target market, in terms of both power range and programme
size, the barriers to entry are lower and there is, therefore, a
risk that competition could quickly increase particularly from
emerging low-cost manufacturers in Asia.
Fluctuations of
revenues, expenses and operating results due to an economic
shock
The revenues, expenses and operating results of the Group could
vary significantly from period to period as a result of a variety
of factors, some of which are outside its control. These factors
include general economic conditions; adverse movements in interest
rates; conditions specific to the market; seasonal trends in
revenues, capital expenditure and other costs and the introduction
of new products or services by the Group, or by their competitors.
In response to a changing competitive environment, the Group may
elect from time to time to make certain pricing, service, marketing
decisions or acquisitions that could have a short-term material
adverse effect on the Group’s revenues, results of operations and
financial condition.
Dependence on 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
key suppliers, this could have a material impact on the Group’s
financial condition and results of operations. However, for the six
months ended 30 June 2018, no one
customer accounted for more than 16% of revenue.
Cyber security /
Information systems failure
The Group is reliant on information technology in multiple
aspects of the business from communications to data storage. Assets
accessible online are potentially vulnerable to theft and customer
channels are vulnerable to disruption. Any failure or downtime of
these systems or any data theft could have a significant adverse
impact on the Group’s reputation or on the results of
operations.
Risks relating to
regulation, compliance and taxation
The Group operates in multiple jurisdictions with applicable
trade and tax regulations that vary. Failing to comply with local
regulations or a change in legislation could impact the profits of
the Group. In addition, the effective tax rate of the Group is
affected by where its profits fall geographically. The Group
effective tax rate could therefore fluctuate over time and have an
impact on earnings and potentially its share price.
Risks and uncertainties
(continued)
Strategic risk
associated with valuing or integrating new acquisitions
The Group may elect from time to time to make strategic
acquisitions. A degree of uncertainty exists in valuation and in
particular in evaluating potential synergies. Post-acquisition
risks arise in the form of change of control and integration
challenges. Any of these could have an effect on the Group’s
revenues, results of operations and financial condition.
Loss of key
personnel or failure to attract new personnel
The future success of the Group is substantially dependent on
the continued services and continuing contributions of its
Directors, senior management and other key personnel. The loss of
the services of key employees could have a material adverse effect
on own business.
Exposure to
exchange rate fluctuations
The Group deals in many currencies for both its purchases and
sales including US Dollars, Euros and its reporting currency Pounds
Sterling. In particular, North
America represents an important geographic market for the
Group where virtually all the revenues are denominated in US
Dollars. The Group also sources components in US Dollars and the
Chinese Renminbi. The Group therefore has an exposure to foreign
currency fluctuations. This could lead to material adverse
movements in reported earnings.
Directors’ responsibility
statement
The interim results were approved by the Board of Directors on
30 July 2018.
The Directors confirm that to the best of their knowledge
that:
·
The unaudited interim results have been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the
European Union; and
·
The interim results include a fair view of the information required
by DTR 4.2.7 (indication of important events during the first six
months and description of principal risks and uncertainties for the
remaining six months of the year) and DTR 4.2.8 (disclosure of
related party transactions and changes therein).
The Directors of XP Power Limited are as follows:
James Peters |
Non-Executive Chairman |
Duncan Penny |
Chief Executive |
Mike Laver |
President, Corporate
Development |
Gavin Griggs |
Chief Financial Officer |
Andy Sng |
Executive Vice President, Asia |
Terry Twigger |
Senior Non-Executive Director |
Peter Bucher |
Non-Executive Director |
Polly Williams |
Non-Executive Director |
30 July 2018