Latest Results

Interim Results for the six months ended 30 June 2011

XP, one of the world's leading developers and manufacturers of critical power control components for the electronics industry, today announces its interim results for the six-month period ended 30 June 2011.

 


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Highlights

  Six months ended Six months ended  
  30 June 2011 30 June 2010  
  (Unaudited) (Unaudited)  
       
       
Revenue £51.9m £40.7m + 28%
Gross profit £25.7m £19.0m + 35%
Gross margin 49.5% 46.7% +2.8% points
Operating margin 23.9% 18.9% + 5.0% points
Adjusted* profit before tax £11.9m £7.3m + 63%
Adjusted* profit after tax £10.1m £5.9m + 71%
Diluted earnings per share adjusted* (see Note 11) 52.9p 31.1p + 70%
Interim dividend per share (see Note 10) 19.0p 13.0p + 46%

 

* Adjusted for amortisation of intangibles associated with acquisitions of nil (2010: £0.1 million)

Larry Tracey, Executive Chairman, commented: 

“Our long term strategy of investing in our own product development and manufacturing capabilities has enabled XP to deliver excellent financial results in the first half of 2011, which, once again, set new records in terms of revenue, gross margins and earnings per share.   Trading conditions remain robust and we entered the second half with a solid order book which should produce improved revenue in the second half as customer orders enter production, underpinning our confidence in prospects for the full year.  We are focused on ensuring continued earnings and dividend growth over the next five years.”

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Chairman's Statement

Overview

The broad based recovery that took hold in 2010 has continued into 2011. The trading environment in the first half remained robust, building on the “V” shaped recovery in 2010.  Against this background, our long term strategy of investing in the development of our own designed and manufactured products has enabled XP to deliver another set of excellent financial results in the first half of 2011, which again set new records in terms of revenue, margins and earnings per share.  

An expansive, up to date portfolio of market leading products and the development of an industry leading in-house manufacturing capability are at the core of our strategy and are leading to multiple new program wins which are driving our growth as we continue to take market share.  

Markets

XP Power supplies power control solutions to original equipment manufacturers (“OEMs”) who supply the healthcare, industrial and technology markets with high value 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, all set a strong foundation for medium term growth in demand for XP Power’s products.    

Revenue growth is being driven by the long term investment we have made in building a broad portfolio of leading edge products.  Revenues for the period were up 28% (32% in constant currency) to £51.9 million, compared with £40.7 million in the same period a year ago.  Revenues in Asia were £4.0 million, up 111%, in Europe revenues were £23.2 million up 21%, and those in North America were £24.7 million up 26%, all on the same period a year ago.

There has been no significant change in the revenue mix of the different industry sectors we target when comparing the first half of 2011 with the first half of 2010. Healthcare grew 21%, Industrial grew 26% and Technology grew 36%. Growth in Technology was most pronounced in Asia and North America, whereas the growth in Industrial was strongest in North America. For the six months ended 30 June 2011, 45% of our revenues were generated from Industrial (2010: 46%), 25% from Healthcare (2010: 26%) and 30% from Technology (2010: 28%).

The Group’s customer base remains highly diversified, with our largest customer accounting for only 4% of revenue, spread over 68 different programs/part numbers.

Margins

Our value proposition to our customers is to reduce their costs of manufacture and operation. We achieve this by producing new products that consume less power, take up less space, reduce installation times and which are highly reliable in service. As the proportion of revenue generated from our own designed product has increased to 55% (2010: 46%), so too have our gross margins. The 49.5% gross margin achieved in the first half of 2011 is another record (2010: 46.7%) and there remains scope for further improvements as the proportion of own design revenue grows.

At present, approximately one quarter of our total revenues are manufactured in-house. This figure is expected to increase significantly as all future new products designed by our design centres will also be manufactured by us. We are adding additional manufacturing capacity to address the combination of overall revenue growth and this higher mix of own manufactured products.

The increase in gross margins in conjunction with our revenue growth is resulting in a substantial improvement in operating margins. Our operating margin in the first half of 2011 was 23.9% (2010: 18.9%) which is now among the best performers in our industry.

Product Development

XP Power helps its customers reduce their own production costs and lower the operating costs of their equipment when in service. Materials, space and energy consumption savings are achieved by applying the combined power control intellect of a multi-disciplined team of some 200 engineers. This is the essence of the value we add for our customers.

New products are fundamental to driving our revenue growth. The markets we serve and the customer requirements we identify are numerous and diverse. The broader our product offering the more opportunity we have to increase our revenues by expanding our available market. The investment we have made in product development in the past few years means that our portfolio of products is now materially complete and the primary focus has shifted to refreshing product families that were released some seven or eight years ago. 

It is significant that the acceleration in the number of new product families introduced over the last three years is yet to have a significant impact on our revenues. This is due to the lengthy design-in cycles determined by customers to qualify the power converter in their equipment and then gain the necessary safety agency approvals. This bodes well for future revenue growth.

We launched 13 new product families in the first half of 2011.  In response to customer requirements for improved efficiency and environmental performance, our design teams are focusing on developing new products that reduce power wastage, reduce heat, and consume less raw material. As anticipated, with our ranges now largely complete, the number of new product introductions is likely to decline this year from the 32 product families introduced in 2010 to around 25 in 2011. Our design engineering teams are now spending more time on modifications to standard products required to address live sales opportunities from our key customers. Many of these new products will be environmentally friendly having very high efficiency and incorporating low stand-by power operation. Net product development spending increased by 19% from £1.6 million in the first half of 2010 to £1.9 million in the first half of 2011.    

Our philosophy is to develop a broad array of standard products which are easy to modify to the customer’s specific requirements. This avoids the need for our customers to embark on an expensive and lengthy custom design process, saving them engineering costs and reducing their time to market. Use of a standard platform also reduces the customer’s risk. Approximately 60% of our revenues come from standard products that we have modified in some way or from our configurable product lines.

Larger customers are keen to reduce the number of vendors they deal with and XP Power’s broad product offering, excellent global engineering support, in-house manufacturing capability and environmental credentials make us an ideal candidate as a preferred supplier.   

Supply Chain Dynamics

Lead times for electronic components have more or less reverted back to normal following the severe component shortages and lead time increases experienced during 2010. Since the end of 2009 we have significantly increased our inventories of critical components in order to continue to offer short lead times to our customers and to protect us from future shortages and external supply chain stocks such as the earthquake that occurred in Japan during March of this year. Inventories increased from £21.0 million at the 2010 year end to £23.3 million at 30 June 2011, with £0.6 million of this increase due to higher safety inventories of critical components.

Manufacturing

XP Power’s move into manufacturing in 2006 has been instrumental in enabling the Group to win approved and preferred supplier status at many new Blue Chip customers. The results of this success are now beginning to manifest themselves in our revenue growth.

In June 2009 production commenced at a new manufacturing facility constructed on our existing site at Kunshan, close to Shanghai, China. This new facility has enabled us to win more of the available business from our existing Blue Chip customer base and to attract new larger customers where we have yet to gain preferred supplier status. These customers demand that their suppliers have complete control over their supply chain and product manufacture to ensure the highest levels of quality. The facility, which is certified under the ISO14001 Environmental Management Standard, delivers manufacturing capabilities which match the best of our competitors.

The facility underwent seven customer inspections during the period and all were successful, paving the way for XP to secure approved and/or preferred supplier status with further new key customers. 

The Kunshan factory is now running at over 50% capacity utilisation due to the increased demand for our latest products which are own-manufactured. In December 2010 work started on an additional factory in Vietnam on the outskirts of Ho Chi Minh City to help meet future demand. The Vietnam site has sufficient space for us to build two factories equivalent to the size of our existing China factory in a phased approach as demand dictates. Construction work is progressing to schedule and we expect to be operational in the first of these new factories during the first quarter of 2012.

Capital requirements to expand our manufacturing capacity are modest compared to the returns. We expect the site preparation and first building cost to be approximately £5.5 million.

Dividend

Since April 2010 the Company has been making quarterly dividend payments.  Our strong financial performance and confidence in the Group’s prospects have enabled us to increase dividends for the first half by 46% to 19.0 pence per share (2010: 13.0 pence per share). 

The first quarterly payment of 9.0 pence per share was made on 7 July 2011.  A second quarterly dividend of 10 pence per share will be paid on 12 October 2011 to shareholders on the register at 9 September 2011. These first two quarterly payments total 19.0 pence per share versus the first two quarterly payments of 13.0 pence per share paid for the equivalent period in 2010.

Dividend growth over the past ten years has exceeded a compound average growth rate of 15%.

Environmental Impact

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 in its product development strategy.  These practices and initiatives not only resonate with our customers and employees; they also make significant commercial sense as countries legislate to reduce power wastage, improve recyclability of manufactured goods and ban the use of harmful chemicals.

The Group was therefore pleased to announce in March that it had been accepted as a Full Member of the Electronic Industry Citizenship Coalition (“EICC”).  The EICC is a collaboration of leading electronics companies that promotes an industry code of conduct for global supply chains to improve working and environmental conditions.  XP’s successful membership application reflects the major progress achieved by the Group in enhancing the energy efficiency of its power converters in recent years and its ongoing commitment to improving its environmental performance. 

Acquisition of the 20% minority interest in XP Power Srl (Italy)

In July we announced the acquisition of the outstanding 20% of the issued share capital of XP Power Srl, the Group’s sales distribution company in Italy, for a maximum consideration of €225,000 (approximately £203,000) in cash. The transaction completed on 12 July 2011 and brings the Group’s total holding in XP Power Srl to 100%.

We believe that 100% ownership of XP Power Srl will allow more control over the sales operations in Italy which will, in turn, help drive the strategy of targeting key accounts with the Group’s own-designed product portfolio.

Management Succession

As reported in our June trading update, having held executive roles on the XP Board since the public listing in 2000 and with the Group’s strategic transformation from distributor to designer and manufacturer of its own range of products now complete, I, along with my Board colleague James Peters, Deputy Chairman, have indicated our intention to relinquish our executive duties in April 2012, at which point we will become non-executive directors.

Duncan Penny, Chief Executive, will assume full responsibility for the day to day management of the business from this point, with Mike Laver, North American President and Executive Director, assuming responsibility for global sales and marketing. Our top 19 managers below Board level have an average age of 41 and average length of service of over 11 years.  James and I will effect a progressive transition of our responsibilities over the coming months to ensure an orderly handover. There is a strong and stable second tier of management below Board level.

Outlook

We entered the second half with a solid order book and new business secured to date should produce improved revenue in the remainder of the current year as customer orders enter production, underpinning our confidence in prospects for the full year.

Our challenge is to ensure that the exceptional results achieved in 2011 are progressively improved over the next five years to the benefit of customers, employees and shareholders. I believe the Group is well placed to execute these objectives.

Larry Tracey
Executive Chairman
1 August 2011

 

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Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2011

£ Millions Note Six months ended
30 June 2011
(Unaudited)		 Six months ended
30 June 2010
(Unaudited)
       
Revenue 7 51.9 40.7
Cost of sales 8 (26.2) (21.7)
Gross profit   25.7 19.0
       
Operating expenses 8 (13.0) (11.5)
Other operating (expense)/income 8 (0.3) 0.2
Operating profit   12.4 7.7
       
Finance cost 8 (0.5) (0.5)
       
Profit before income tax 7 11.9 7.2
       
Income tax expense 9 (1.6) (1.3)
       
Net profit   10.3 5.9
       
Other comprehensive income:      
Fair value (losses)/gains on cash flow hedges   (0.4) 0.8
Exchange differences on translation of foreign operations   0.4 (0.7)
       
Other comprehensive income, net of tax   - 0.1
       
Total comprehensive income   10.3 6.0
       
Profit attributable to:      
- equity holders of the company   10.1 5.8
- non-controlling interest   0.2 0.1
    10.3 5.9
       
Total comprehensive income attributable to:      
- equity holders of the company   10.1 5.9
- non-controlling interest   0.2 0.1
    10.3 6.0
       
Earnings per share for profit from continuing operations attributable to equity holders of the Company   Pence per
Share		 Pence per
Share
       
       
Basic 11 53.4 30.8
Diluted 11 52.9 30.6
       

 

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Consolidated Balance Sheet
At 30 June 2011

£ Millions Note At 30
June 2011
(Unaudited)		 At 31
December 2010		 At 30
June 2010
(Unaudited)
Assets        
Current assets        
Cash and cash equivalents 7 4.7 5.0 2.9
Derivative financial instruments 7 - - 1.0
Trade receivables 7 16.5 15.6 13.3
Other current assets 7 2.0 1.5 1.4
Inventories 6, 7 23.3 21.0 15.2
Total current assets   46.5 43.1 33.8
Non-current assets        
Interests in associates   0.1 0.1 0.1
Property, plant and equipment   9.6 8.3 7.9
Goodwill 7 30.8 30.8 31.0
Intangible assets 12 5.5 5.3 4.9
ESOP loans to employees   1.9 2.4 2.6
Deferred income tax assets 7 0.7 0.8 0.4
Total non-current assets   48.6 47.7 46.9
Total assets   95.1 90.8 80.7
Liabilities        
Current liabilities        
Trade and other payables 7 14.3 15.5 14.0
Current income tax liabilities 7 1.9 3.4 2.9
Derivative financial instruments 7 0.8 0.4 0.3
Borrowings 14 15.9 12.7 4.0
Provision for deferred contingent consideration   3.6 - -
Total current liabilities   36.5 32.0 21.2
Non-current liabilities        
Borrowings 14 8.4 10.7 18.1
Deferred income tax liabilities 7 1.7 1.8 1.7
Provision for deferred contingent consideration 7 - 3.5 3.7
Total non-current liabilities   10.1 16.0 23.5
Total liabilities   46.6 48.0 44.7
NET ASSETS   48.5 42.8 36.0
Capital and reserves 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   (1.0) (1.0) (0.9)
Hedging reserve   (0.8) (0.4) 0.6
Translation reserve   (7.2) (7.6) (8.1)
Retained earnings   29.9 24.2 16.8
    48.3 42.6 35.8
Non-controlling interest   0.2 0.2 0.2
Total equity   48.5 42.8 36.0

 

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Consolidated Statement of Changes in Equity
For the six months ended 30 June 2011 (Unaudited)

  Share capital Company treasury shares Merger reserve Hedging reserve Translation reserve Retained earnings Total attributable to equity holders of the parents Non-controlling interest Total Equity
Balance at 1 January 2010 27.2 (0.9) 0.2 (0.2) (7.4) 13.3 32.2 0.3 32.5
Dividends paid - - - - - (2.3) (2.3) (0.2) (2.5)
Total comprehensive income for the period - - - 0.8 (0.7) 5.8 5.9 0.1 6.0
Balance at 30 June 2010 27.2 (0.9) 0.2 0.6 (8.1) 16.8 35.8 0.2 36.0
Balance at 1 January 2011 27.2 (1.0) 0.2 (0.4) (7.6) 24.2 42.6 0.2 42.8
Sale of treasury shares - 1.2 - - - (0.6) 0.6 - 0.6
Purchase of treasury shares - (1.2) - - - - (1.2) - (1.2)
Dividends paid - - - - - (3.8) (3.8) (0.2) (4.0)
Total comprehensive income for the period - - - (0.4) 0.4 10.1 10.1 0.2 10.3
Balance at 30 June 2011 27.2 (1.0) 0.2 (0.8) (7.2) 29.9 48.3 0.2 48.5

 

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Consolidated Statement of Cash Flow
For the six months ended 30 June 2011

£ Millions Note Six months ended
30 June 2011
(Unaudited)		 Six months ended
30 June 2010
(Unaudited)
Cash flows from operating activities      
       
Total profit   10.3 5.9
Adjustments for      
Income tax expense   1.6 1.3
Amortisation and depreciation   1.0 1.1
Finance cost   0.5 0.5
Gain on fair valuation of derivative financial instruments   - (0.1)
       
Change in the working capital      
Inventories   (2.3) (4.5)
Trade and other receivables   (1.3) (2.5)
Trade and other payables   (1.1) 4.8
Income tax paid   (2.9) (1.3)
Net cash provided by operating activities 13 5.8 5.2
       
Cash flows from investing activities      
       
Purchases and construction of property, plant and equipment   (2.1) (1.0)
Research and development expenditure paid 8 (0.6) (0.9)
ESOP loan repaid   0.5 -
Net cash used in investing activities   (2.2) (1.9)
       
Cash flows from financing activities      
       
Repayment of borrowings   (2.8) (0.4)
Purchase of treasury shares by ESOP   (0.6) -
Interest paid   (0.4) (0.4)
Dividends paid to equity holders of the Company   (3.8) (2.3)
Dividends paid to non-controlling interest   (0.2) (0.2)
Net cash used in financing activities   (7.8) (3.3)
       
Effects of currency translation   0.3 (1.1)
       
Net decrease in cash and cash equivalents   (3.9) (1.1)
Cash and cash equivalents at start of period   1.0 3.9
Effects of currency translation on cash and cash equivalents   0.1 0.1
       
Cash and cash equivalents at the end of the period 13 (2.8) 2.9

 

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Notes

The notes are available in the printable pdf of the results. To download it, please click here.

Financials