XP POWER INTERIM REPORT · POWERING THE WORLD’S CRITICAL SYSTEMS XP POWER INTERIM REPORT for the six months ended 30 June 2016 stock code: XPP XP Power IR2016.indd 2 25036.04 1

POWERING THE WORLD’S CRITICAL SYSTEMS

XP POWERINTERIM REPORT for the six months ended 30 June 2016

stock code: XPP

25036.04 1 August 2016 10:12 AM Proof 4XP Power IR2016.indd 2 01/08/2016 10:49:43

XP POWER – POWERING THE WORLD’S CRITICAL SYSTEMS

VISIT US ONLINEFor more information on XP Power please visit our website at www.xppower.com

CONTENTS

1 Financial and Operational Highlights2 Interim Statement

8 Consolidated Statement of Comprehensive Income9 Consolidated Balance Sheet10 Consolidated Statement of Changes in Equity12 Consolidated Statement of Cash Flows14 Notes to the Interim ResultsIBC Advisors

BUSINESS REVIEW

FINANCIALS

James Peters, Chairman, commented:

“The Group has had an encouraging first half. Reported order intake and revenues for the first six months of 2016 all set new records, assisted by a stronger US Dollar and the acquisition of EMCO last year. Our balance sheet is strong and we are in an excellent position to make selective acquisitions to further broaden our product offering and engineering capabilities.

Although the global economic outlook remains uncertain, particularly following the United Kingdom’s decision to leave the EU and the resultant weakness of Sterling, we are encouraged by our order intake and strong backlog. While not immune from any global economic slowdown, these give us confidence that we should be able to continue to grow revenues in the second half of 2016 as designs won in 2015 and prior years enter their production phase.”


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BUSINESS REVIEW

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HIGHLIGHTS

Orders(£ millions)

+9%(+4% in constant currency)

2015 2016

61.656.5 Revenue

(£ millions)

+12%(+7% in constant currency)

2015 2016

60.353.9 Adjusted

OperatingMargin1

(%)

2015 2016

21.923.6

Adjusted Profit Before Tax1

(£ millions)

+4%2015 2016

13.112.6 Adjusted Diluted Earnings Per Share1

(£ millions)

+4%(see Note 9)

2015 2016

52.250.1 Interim Dividend Per Share1

(pence)

+7%(see Note 8) 2015 2016

29.027.0

1 Adjusted for intangibles amortisation of £0.1 million and £0.1 million of costs associated with abortive acquisitions

BUSINESS REVIEW

OPERATIONAL HIGHLIGHTS

} Order intake increased by 9% to £61.6 million (+4% in constant currency)

} Revenue increased by 12% to £60.3 million (+7% in constant currency)

} Gross margin decreased slightly to 49% (1H 2015: 49.4%) due to Euro exchange rate effects

} Own-design XP product revenues increased 20% to a record £43.4 million (1H 2015: £36.2), and now represent 72% of total revenues (1H 2015: 67.2%)

} Revenues for ultra-high efficiency “Green XP Power” products continue to grow and are up by 28% to £14.2 million (1H 2015: £11.1 million) now representing 24% of total revenue (1H 2015: 21%)

} EMCO, the high voltage specialist acquired in November 2015, performing well with order intake US$5.8 million (£4.0 million) and revenues of US$4.5 million (£3.1 million)

} Manufacturing progress in our lower cost Vietnam facility – 140,000 power converters manufactured during the first half of 2016 (1H 2015: 24,000)

} New product introductions and the development of an industry leading in-house manufacturing capability continue to generate new program wins to drive future growth and market share gains

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XP Power Interim Report for the six months ended 30 June 2016

www.xppower.com stock code: XPP

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INTERIM STATEMENT

OverviewThe Group has had an encouraging first half of 2016. Our reported order intake and revenues for the first six months of 2016 were aided by the strength of the US Dollar and our acquisition of EMCO in November last year. The resulting solid earnings and cashflow support a further increase in the dividend.

Order intake in the first half of 2016 surpassed revenues with a book to bill ratio of 1.02 (1H 2015: 1.05) and ahead of the 0.97 book to bill experienced in the second half of 2015 due to weakness in the North America industrial sector. Consequently, overall momentum has built in our business and we enter the second half of the current year with an increased order backlog of £50.0 million (December 2015: £48.0 million).

We have continued to execute well against our strategy even though the capital goods markets we serve have remained somewhat subdued. The successful implementation of our strategy continues to drive market share gains and we are encouraged both by the strength of our order backlog and new programs wins.

Our strategy and value propositionThe Group has applied a consistent strategy of moving up the value chain. Our growth derives from targeting key account customers. Once we are approved to supply these larger customers, we have proven success in gaining a higher 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 available market.

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 products that are easy to design into the customer’s system, consume less power, take up less space and reduce installation times, and which are highly reliable in service.

We aim to be the first choice power solutions provider, both for our customers and as a place to work.

Trading and Financial ReviewXP Power supplies power control solutions to original equipment manufacturers (“OEMs”) who supply the healthcare, industrial 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, have established a strong foundation for growth in demand for XP Power’s products.

Order intake of £61.6 million (1H 2015: £56.5 million) was up 9% (4% in constant currency) and set a new record for the Group. Compared to the same period a year ago, Asia increased by 5%, Europe increased by 1% and North America increased by 17%. The average US Dollar to Sterling exchange rate was 1.52 in the first half of 2015 compared with 1.44 in the first half of 2016 representing a 5% strengthening. This increased the reported order intake compared to the first half of 2015 as did orders of US$5.8 million (£4.0 million) from EMCO, the specialist in high voltage modules acquired in November 2015.

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BUSINESS REVIEW

INTERIM STATEMENT

Reported revenues grew 12% to £60.3 million in the six months to 30 June 2016 compared to £53.9 million in the same period a year ago. When adjusting to constant currency the underlying growth was 7% in the first half of the year compared to the same period a year ago. EMCO contributed US$4.5 million (£3.1 million).

Revenues in North America were £30.8 million (1H 2015: £26.9 million), up 14% compared to the same period a year ago. Revenues in Europe were £24.6 million (1H 2015: £23.2 million), up 6% on the same period a year ago. Revenues in Asia were £4.9 million (1H 2015: £3.8 million), up 29% compared with the same period a year ago.

On a sector basis, industrial increased by 20% to £28.8 million (1H 2015: £24.0 million) driven largely by a strong performance in Europe but also from some recovery after the weakness seen in the industrial sector in North American accounts in the prior year. The technology sector grew by 11% compared with the first half of 2015 to £14.0 million (1H 2015: £12.6 million) driven by semiconductor manufacturing and broadcast customers. Revenues

from healthcare grew more modestly by 1% to £17.5 million (1H 2015: £17.3 million). We expect growth in healthcare to improve over the medium term as new healthcare programs enter the production stage. In terms of overall revenue for the first half of 2016, industrial represented 48% (1H 2015: 45%), technology represented 23% (1H 2015: 23%) and healthcare represented 29% (1H 2015: 32%).

Our customer base remains highly diversified with the largest customer accounting for 5% of revenue, spread over 120 different programs/part numbers.

MarginsWe continue to generate industry leading margins. Gross margin in the first half of 2016 was 49% (1H 2015: 49.4%). The small decline from 2015 was primarily due to reduced margins on revenues invoiced in Euro. In 2015 we were able to raise our Euro pricing as the Euro weakened versus the US Dollar (on which our input costs are based) while still taking advantage of our Euro exchange rate hedges. In 2016 we had the benefit of the previous raised prices but not the gains from the hedging program.

Operating expenses in the first half were £16.3 million (1H 2015: £13.9 million) after adding back £0.1 million of intangibles amortisation (1H 2015: nil) and £0.1 million of abortive acquisition costs (1H 2015: nil). Again there is a significant translation effect from the strengthening US Dollar versus Sterling which we estimate increased reported operating expenses by approximately £0.5 million. In addition we had the full year cost impact of the additional sales and engineering resources added in 2015 to drive future revenue growth, which added approximately £0.7 million to operating expenses over the first half of 2015. The additional operating expenses from the acquisition of EMCO added a further £1.2 million. Gross product development spend was £3.8 million (1H 2015: £3.1 million), £2.0 million of which was capitalised (1H 2015: £1.4 million), and £1.0 million amortised (1H 2015: £0.9 million).

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INTERIM STATEMENT

Notwithstanding our investment in additional sales and engineering resources to support future growth and the acquisition of EMCO in November 2015 we continue to achieve excellent adjusted operating margins of 21.9% (1H 2015: 23.6%) highlighting the strength of our business model. We expect further improvement in this metric as market conditions improve.

TaxationThe tax charge for the period was £2.9 million (1H 2015: £3.0 million) which represents an effective tax rate of 22.5% (1H 2015: 23.8%). We maintain our guidance range for our future tax rate of 23.0% to 24.5% depending on how profits fall geographically.

AcquisitionsIn November 2015 we announced the acquisition of the business and assets of EMCO High Voltage Corporation (“EMCO”), a designer and manufacturer of high voltage power modules, for a total consideration of US$11.7 million (£7.7 million) in cash.

EMCO, based in Northern California and with manufacturing operations in Nevada, supplies the healthcare, industrial and technology sectors with a broad range of standard, modified and custom high voltage products. The integration of the EMCO business has progressed well and in the six months ended 30 June 2016 we received orders of US$5.8 million (£4.0 million) for EMCO products and we shipped US$4.5 million (£3.1 million).

As well as a product offering suitable for an array of applications used by some of our existing customer base, EMCO brought with it a number of new customers to XP Power.

Financial PositionClass-leading gross and operating margins and modest capital requirements have resulted in continued strong cash flow. After payment of the 2015 final dividend our net debt was £6.0 million at the end of the period. This compares with net debt of £3.7 million at 31 December 2015 and £0.4 million at 30 June 2015.

Product DevelopmentNew 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 is yet to have a material impact on our revenues, given the time lag from launch to them entering production. This is due to the lengthy design-in cycles required by customers to qualify the power converter in their equipment and then gain the necessary safety agency approvals.

XP launched 27 new product families in the first half of 2016 (1H 2015: 13). The relatively high number of new product introductions was aided by the introduction of a new labelled product supplier to increase our offering of DC-DC converters. We continue to lead our industry on the introduction of high efficiency, “green” products, with 18 of those new products released in the first half of 2016 being of high efficiency design.

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BUSINESS REVIEW

INTERIM STATEMENT

Examples of products released in the period which demonstrate the diversity of our product portfolio include the ALM65 family and the XT16 three phase input version of our configurable fleXPower range.

The ALM65 family is an external 65 Watt AC-DC power converter that complies with the latest Level VI energy efficiency standard, which was only introduced in February 2016. This new standard ensures that much less power is consumed when the end-unit is switched off or not connected, and seeks to increase average efficiency to reduce waste power when the load is connected. The ALM65 family of products also meets the latest medical standards so can be designed into healthcare applications.

By contrast the XT16 is an addition to our existing modular fleXPower series which can be configured into a bespoke solution for quick delivery of samples, prototypes and production, with up to 1,600 Watts of output power. The product can be populated with up to seven output modules chosen from 44 single output and 16 dual output modules, ranging from 3.3V at 66W to 60V at 750W. Introduced in response to customer demand, the XT16 is the first three phase input

version we have introduced to the fleXPower family.

Revenue from own design products was £43.4 million (1H 2015: £36.2 million) up 20% from the same period in 2015 and now represents 72% (1H 2015: 67.2%) of total revenue.

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.

Manufacturing ProgressXP 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 demand that their suppliers have complete control over their supply chain and product manufacture to ensure the highest levels of quality.

In addition to our Chinese manufacturing facility located 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 requirement for magnetics.

Producing our own magnetic components in Vietnam is helping us mitigate the continued rise of Chinese labour costs and the appreciation of the Chinese Renminbi. 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 113 part numbers approved for production in Vietnam with many more in the pipeline. XP manufactured 550,000 power converters in total during the first half of 2016 and 140,000 of these were produced in the Vietnamese facility.

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INTERIM STATEMENT

We expect the proportion of power converters produced in Vietnam to increase as we transfer more products to that facility.

We continue to build on our manufacturing capabilities and are currently undertaking a project to introduce lean manufacturing principles in both our Chinese and Vietnamese facilities to reduce costs and improve cycle times.

DividendSince April 2010 the Company has been making 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 7% to 29.0 pence per share (1H 2015: 27.0 pence per share).

The first quarter dividend payment of 14 pence per share was made on 8 July 2016. The second quarter dividend of 15 pence per share will be paid on 13 October 2016 to shareholders on the register at 16 September 2016.

The compound average growth rate in dividends over the last 10 years has been 15%.

Environmental Impact and “Green XP Power” productsXP 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. 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.

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). We now apply our own “Green XP Power” logo to the products we designate ultra-high efficiency. During the first half of 2016 24% of our revenues were generated by “Green XP Power” products compared to 21% in 2015, 17% in 2014, 11% in 2013, 6% in 2012 and 5% in 2011.

At present, the uptake of these products by customers is primarily driven by their improved reliability and the ability to dispense with mechanical fans to dissipate waste heat, rather than the fact that they consume less energy in operation. However, we expect this to change as lower energy consumption becomes a higher priority to end users of capital equipment and more legislation is introduced.

Board ChangesOn 1 January 2016 Polly Williams joined our Board as a Non-Executive Director. Polly, a chartered accountant, is a former partner at KPMG LLP and holds a number of Non-Executive Directorship roles, including at Jupiter Fund Management plc, TSB Group plc and Daiwa Capital Markets Europe Ltd. Polly chairs XP Power’s Remuneration Committee and is a member of the Audit Committee. Polly has a wealth of public company experience and adds significant strength to our Board.

John Dyson stepped down from the Board following this year’s Annual General Meeting after many years of excellent service to the Company.

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BUSINESS REVIEW

INTERIM STATEMENT

OutlookThe decision of the United Kingdom to leave the European Union has resulted in a significant weakening of Sterling versus the US Dollar and a degree of economic uncertainty. Approximately 20% of our revenues derive from UK customers. It is difficult to judge how our business in the UK will be affected at this point in terms of whether we will see a slow down in this market or whether our customers might actually benefit in export markets from the depreciation of Sterling. What we can say is that if current exchange rates persist in the second half of the year it will have a favourable translation affect on our reported revenues, as over 76% of our world wide revenues are derived in US Dollars, but a slightly adverse affect on United Kingdom margins if we cannot pass on price increases to the circa 67% of our UK customers who we currently invoice in Sterling.

The Group continues to have a strong balance sheet position which places us in an excellent position to make selective acquisitions to further broaden our product offerings and engineering capabilities.

While the global economic outlook remains uncertain and exchange rates are volatile, we are encouraged by our record order intake and strong backlog. This, together with new program wins gives us confidence that we should be able to continue to grow revenues in the second half of 2016 as designs won in 2015 and prior years enter their production phase.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 30 June 2016

£ Millions Note

Six months ended

30 June 2016 (Unaudited)

Six months ended


Revenue 5 60.3 53.9

Cost of sales 6 (30.8) (27.3)

Gross profit 29.5 26.6

Operating expenses 6 (16.5) (13.9)

Operating profit 13.0 12.7

Finance cost 6 (0.1) (0.1)

Profit before income tax 12.9 12.6

Income tax expense 7 (2.9) (3.0)

Profit after income tax 10.0 9.6

Other comprehensive income:

Exchange differences on translation of foreign operations 6.8 (0.5)

Other comprehensive income, net of tax 6.8 (0.5)

Total comprehensive income 16.8 9.1

Profit attributable to:

– Equity holders of the Company 9.8 9.6

– Non-controlling interests 0.2 –

10.0 9.6

Total comprehensive income attributable to:

– Equity holders of the Company 16.6 9.1

– Non-controlling interests 0.2 –

16.8 9.1

NotePence

per SharePence

per Share

Earnings per share attributable to equity holders of the Company

Basic 9 51.6 50.5

Diluted 9 51.1 50.1

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BUSINESS REVIEWFINANCIALS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 30 June 2016

£ Millions Note

At 30 June 2016

(Unaudited)

At 31 December

2015

At 30 June 2015 (Unaudited)

ASSETSCurrent assetsCash and cash equivalents 11 5.8 4.9 3.9Trade receivables 21.3 17.5 18.3Other current assets 2.0 2.4 2.2Inventories 33.6 28.7 25.8Derivative financial instruments – – 0.9Total current assets 62.7 53.5 51.1Non-current assetsProperty, plant and equipment 17.9 16.1 15.0Goodwill 38.6 36.3 30.5Intangible assets 10 13.3 11.9 10.4Other Investment – – 0.1Deferred income tax assets 0.4 0.4 0.3ESOP loans to employees 0.7 0.7 0.8Total non-current assets 70.9 65.4 57.1Total assets 133.6 118.9 108.2LIABILITIESCurrent liabilitiesTrade and other payables 14.9 14.6 14.4Current income tax liabilities 2.3 1.2 2.1Derivative financial instruments 0.3 – –Borrowings 12 9.2 4.0 4.3Total current liabilities 26.7 19.8 20.8Non-current liabilitiesDeferred income tax liabilities 4.3 3.9 2.6Provision for deferred contingent consideration 1.5 1.5 1.8Borrowings 12 2.6 4.6 –Total non-current liabilities 8.4 10.0 4.4Total liabilities 35.1 29.8 25.2NET ASSETS 98.5 89.1 83.0EquityEquity attributable to equity holders of the CompanyShare capital 27.2 27.2 27.2Merger reserve 0.2 0.2 0.2Treasury shares (0.8) (1.0) (1.1)Hedging reserve 0.1 0.1 0.6Translation reserve 1.5 (5.3) (6.8)Retained earnings 69.4 67.1 62.2

97.6 88.3 82.3Non-controlling interest 0.9 0.8 0.7TOTAL EQUITY 98.5 89.1 83.0

CONSOLIDATED BALANCE SHEETAt 30 June 2016

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2016 (Unaudited)

Attributable to equity holders of the company

£ MillionsShare

capitalTreasury

sharesMerger reserve

Hedging reserve

Translation reserve

Retained earnings Total

Non-controlling investment

Total equity

Balance at 1 January 2015 27.2 (1.1) 0.2 0.6 (6.3) 59.6 80.2 0.1 80.3

Sale of treasury shares – – – – – (0.2) (0.2) – (0.2)

Purchase of treasury shares – (0.1) – – – – (0.1) – (0.1)

Employee share option plan expenses – 0.1 – – – – 0.1 – 0.1

Dividends paid – – – – – (6.8) (6.8) (0.1) (6.9)

Acquisition of subsidiary – – – – – – – 0.7 0.7

Total comprehensive income for the period – – – – (0.5) 9.6 9.1 – 9.1

Balance at 30 June 2015 27.2 (1.1) 0.2 0.6 (6.8) 62.2 82.3 0.7 83.0


Sale of treasury shares – 0.1 – – – (0.1) – – –

Purchase of treasury shares – – – – – – – – –


Dividends paid – – – – – (7.4) (7.4) (0.1) (7.5)

Acquisition of subsidiary – – – – – – – – –

Total comprehensive income for the period – – – – 6.8 9.8 16.6 0.2 16.8

Balance at 30 June 2016 27.2 (0.8) 0.2 0.1 1.5 69.4 97.6 0.9 98.5

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2016 (Unaudited)

Attributable to equity holders of the company

£ MillionsShare

capitalTreasury

sharesMerger reserve

Hedging reserve

Translation reserve

Retained earnings Total

Non-controlling investment

Total equity


Sale of treasury shares – – – – – (0.2) (0.2) – (0.2)

Purchase of treasury shares – (0.1) – – – – (0.1) – (0.1)


Dividends paid – – – – – (6.8) (6.8) (0.1) (6.9)

Acquisition of subsidiary – – – – – – – 0.7 0.7

Total comprehensive income for the period – – – – (0.5) 9.6 9.1 – 9.1

Balance at 30 June 2015 27.2 (1.1) 0.2 0.6 (6.8) 62.2 82.3 0.7 83.0


Sale of treasury shares – 0.1 – – – (0.1) – – –

Purchase of treasury shares – – – – – – – – –


Dividends paid – – – – – (7.4) (7.4) (0.1) (7.5)

Acquisition of subsidiary – – – – – – – – –

Total comprehensive income for the period – – – – 6.8 9.8 16.6 0.2 16.8

Balance at 30 June 2016 27.2 (0.8) 0.2 0.1 1.5 69.4 97.6 0.9 98.5

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CONSOLIDATED STATEMENT OF CASH FLOWSFor the six months ended 30 June 2016

£ Millions Note

Six months ended

30 June 2016(Unaudited)

Six months ended

30 June 2015(unaudited)

Cash flows from operating activities

Total profit 10.0 9.6

Adjustments for

– Income tax expense 2.9 3.0

– Amortisation and depreciation 2.2 1.8

– Finance cost 0.1 0.1

– Loss/(gain) on fair valuation of derivative financial instruments 0.3 (0.6)

– ESOP expenses 0.1 0.1

– Unrealised currency translation loss 2.4 0.3

Change in the working capital

– Inventories (4.9) (0.6)

– Trade and other receivables (3.4) (2.8)

– Trade and other payables 0.3 –

– Income tax paid (1.8) (2.4)

Net cash generated from operating activities 8.2 8.5

Cash flows from investing activities

Acquisition of a subsidiary, net of cash acquired – (0.6)

Purchases and construction of property, plant and equipment (1.2) (1.3)

Research and development expenditure capitalised 6 (2.0) (1.4)

ESOP loan repaid – 0.1

Net cash used in investing activities (3.2) (3.2)

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CONSOLIDATED STATEMENT OF CASH FLOWSFor the six months ended 30 June 2016

£ Millions Note

Six months ended

30 June 2016(Unaudited)

Six months ended

30 June 2015(unaudited)

Cash flows from financing activities

Repayment of borrowings (1.2) –

Sale of treasury shares by ESOP 0.1 –

Purchase of treasury shares by ESOP – (0.1)

Interest paid (0.1) (0.1)

Dividends paid to equity holders of the Company (7.4) (6.8)

Dividends paid to non-controlling interest (0.1) (0.1)

Net cash used in financing activities (8.7) (7.1)

Net decrease in cash and cash equivalents (3.7) (1.8)

Cash and cash equivalents at start of period 4.3 1.3

Effects of currency translation on cash and cash equivalents 0.2 0.1

Effects of currency translation on loan and borrowings 1.0 –

Cash and cash equivalents at the end of the period 11 1.8 (0.4)

Reconciliation of changes in cash and cash equivalents to movements in net debt

Net decrease in cash and cash equivalents (3.7) (1.8)

Repayment of borrowings 1.2 –

Effects on currency translation-cash and cash equivalents 0.2 0.1

Movement in net debt (2.3) (1.7)

Net (debt)/cash at start of period (3.7) 1.3

Net debt at end of period (6.0) (0.4)

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NOTES TO THE INTERIM RESULTSFor the six months ended 30 June 2016

1. General informationXP 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 preparationThe condensed consolidated interim financial statements for the period ended 30 June 2016 have been prepared in accordance with the Listing Rules of the Financial Services Authority and with 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 2015 which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

3. Going ConcernThe 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 policiesThe 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 2015.

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5. Segmented analysisThe 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, revenue and total group profit before taxation by geographical region is set out below.

£ Millions

Six months ended


Six months ended


Revenue

Asia 4.9 3.8

Europe 24.6 23.2

North America 30.8 26.9

Total revenue 60.3 53.9

£ Millions

Six months ended


Six months ended


Total assets

Asia 43.0 35.6

Europe 26.7 24.6


Segment assets 133.2 107.9

Unallocated deferred tax 0.4 0.3

Total assets 133.6 108.2

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5. Segmented analysis (continued)Reconciliation of segment results to profit after income tax:

£ Millions

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Six months ended


Asia 1.1 –

Europe 6.0 3.8


Segment result 17.5 11.2

Corporate recovery from operating segment (1.7) 4.1

Research and development cost (2.8) (2.6)

Finance cost (0.1) (0.1)

Profit before income tax 12.9 12.6

Income tax expense (2.9) (3.0)

Profit after income tax 10.0 9.6

The Group operates in the following regions and countries:

£ Millions

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Six months ended


Revenue


United Kingdom 13.0 12.4

Singapore 4.4 3.8

Germany 5.5 5.1

Switzerland 2.1 1.7

Other countries 4.5 4.0

Total revenue 60.3 53.9

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6. Expenses by nature

£ Millions

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Profit for the period is after charging/(crediting):

Amortisation of intangible assets 1.1 0.9

Depreciation of property, plant and equipment 1.1 0.9

Foreign exchange loss/(gain) 0.2 (0.8)

(Gain)/Loss on foreign exchange forward (0.2) 0.7

Purchases of inventories 19.3 22.6

Changes in inventories 4.9 0.6

Audit fee payable to Group’s auditor for audit of the Group’s annual account 0.2 0.2

Audit fee payable to other audit firm for audit related services – –

Tax fees payable to Group’s auditor for services provided to the Group – 0.1

Tax fees payable to other firms for services provided to the Group – –

Other charges 20.8 16.1

Total 47.4 41.3

Included in the above is net research and development expenditure as follows:

£ Millions

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Six months ended


Gross research and development expenditure 3.8 3.1

Development expenditure capitalised (2.0) (1.4)

Amortisation of development expenditure capitalised 1.0 0.9

Net research and development expenditure 2.8 2.6

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7. TaxationIncome 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 2016 is 22.5% (2015: 24.1%).

£ Millions

Six months ended


Six months ended


Singapore corporation tax 1.3 1.0

Overseas corporation tax 1.6 2.0

Total taxation 2.9 3.0

8. DividendsAmounts recognised as distributions to equity holders of the Company in the period:

Six months ended 30 June 2016 (Unaudited)

Six months ended 30 June 2015 (Unaudited)

Pence per share £ Millions

Pence per share £ Millions

Prior year 3rd quarter dividend paid 15.0 2.8 14.0 2.6

Prior year final dividend paid 24.0 4.6 22.0 4.2

Total 39.0 7.4 36.0 6.8

The dividends paid recognised in the interim financial statements relate to the third quarter and final dividends for 2015.

The first quarterly dividend of 14 pence per share (2015: 13 pence) was paid on 8 July 2016. A second quarterly dividend of 15 pence per share (2015: 14 pence) will be paid on 13 October 2016 to shareholders on the register at 16 September 2016.

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9. Earnings per shareEarnings per share attributable to equity holders of the company arise from continuing operations as follows:

£ Millions

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Six months ended


Earnings

Earnings for the purposes of basic and diluted earnings per share (profit for the period attributable to equity shareholders of the company) 9.8 9.6

Amortisation of intangibles associated with acquisitions 0.1 –

Cost associated with abortive acquisitions 0.1 –

Earnings for adjusted earnings per share 10.0 9.6

Number of shares ’000 ’000

Weighted average number of shares for the purposes of basic earnings per share (thousands) 19,011 18,998

Effect of potentially dilutive share options (thousands) 182 177

Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 19,193 19,175

Earnings per share from operations

Basic 51.6p 50.5p

Diluted 51.1p 50.1p

Adjusted 52.2p 50.1p

10. Intangible assetsIntangible assets comprises development expenditure capitalised when it meets the criteria laid out in IAS 38, “Intangible Assets”, trademarks, brand and technology, customer contracts and non-contractual customer relationships.

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11. Cash and cash equivalentsFor the purpose of presenting the consolidated cash flow statement, the consolidated cash and cash equivalents comprise the following:

£ Millions

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Six months ended


Cash and bank balances 5.8 3.9

Less: Bank overdrafts (4.0) (4.3)

Cash and cash equivalents per consolidated cash flow statement 1.8 (0.4)

Reconciliation to free cash flow:

Net cash inflow from operating activities 8.2 8.5

Development expenses capitalised (2.0) (1.4)

Finance cost (0.1) (0.1)

Free cash flow 6.1 7.0

12. Borrowings, bank loans and overdraft

£ Millions30 June 2016

(Unaudited)31 December

2015 30 June 2015

(Unaudited)

Non-current 2.6 4.0 –

Current 9.2 4.6 4.3

Total 11.8 8.6 4.3

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13. Currency ImpactWe 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 half2016

Average

First half2015

Average%

Change

30 June 2016

Period end

31 December2015

Period end

30 June 2015

Period end

USD/GBP 1.44 1.52 -5.3% 1.33 1.50 1.57

EUR/GBP 1.30 1.35 -3.7% 1.20 1.37 1.40

Approximately 76% 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 2015 to the first half of 2016 are summarised as follows:

£ Millions USD EUR

Impact on revenues 2.3 0.2

Impact on profit before tax 0.5 0.1

Impact on net debt (1.4) 0.1

14. Risks and uncertaintiesLike 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:

Fluctuations in foreign currencyThe Group has an exposure to foreign currency fluctuations. This could lead to material adverse movements in reported earnings.

Dependence on key personnelThe future success of the Group is substantially dependent on the continued services and continuing contributions of its Directors, senior management and other key personnel.

Loss of key customers/suppliersThe Group is dependent on retaining its key customers and suppliers. However, for the six months ended 30 June 2016, no one customer accounted for more than 6% of revenue.

Shortage, non-availability or technical fault with regard to key electronic componentsThe 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.

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14. Risks and uncertainties (continued)Fluctuations of revenues, expenses and operating resultsThe 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.

Information Technology SystemsThe business of the Group relies to a significant extent on information technology systems used in the daily operations of its operating subsidiaries. Any failure or impairment of those systems or any inability to transfer data onto any new systems introduced could cause a loss of business and/or damage to the reputation of the Group together with significant remedial costs.

Risks relating to taxation of the Group The Group is exposed to corporation tax payable in many jurisdictions. The effective tax rate of the Group is affected by where its profits fall geographically. The Group effective tax rate could therefore fluctuate over time. This could have an impact on earnings and potentially its share price. Further, the Group’s tax position includes judgments about past and future events and relies on estimates and assumptions.

15. Directors’ responsibility statementThe interim results were approved by the board of directors on 25 July 2016.

The directors confirm that to the best of their knowledge that:

} The unaudited interim results have been prepared in accordance with IAS 34 “Interim 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 listed in the Company’s 2015 Annual Report.

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SHAREHOLDER NOTES

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SHAREHOLDER NOTES

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xp power limited advisors

Company BrokersInvestec2 Gresham StreetLondonEC2V 7QPUnited Kingdom

principal BankersBank of Scotland plcThe MoundEdinburghEH1 1YZUnited Kingdom

solicitorsOsborne Clarke2 Temple Back EastTemple QuayBristolBS1 6EGUnited Kingdom

registrarsCapita RegistrarsThe Registry34 Beckenham RoadBeckenhamKentBR3 4TUUnited Kingdom

Company secretaryM & C Services Private Limited112 Robinson Road #05-01The Corporate OfficeSingapore 068902

auditorPricewaterhouseCoopers LLP8 Cross Street,PWC Building, #17-00Singapore 048424

xp power – powering the world’s CritiCal systems

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This Annual Report is printed by an FSC® (Forest Stewardship Council), certified printer using vegetable based inks.

This report has been printed on Essential silk, a white coated paper and board using 100% EFC pulp.

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XP POWER LIMITED401 Commonwealth DriveHaw Par TechnocentreLobby B #02-02Singapore 149598T: +65 6411 6900F: +65 6479 6305


Documents

XP POWER INTERIM REPORT · POWERING THE WORLD’S CRITICAL SYSTEMS XP POWER INTERIM REPORT for the six months ended 30 June 2016 stock code: XPP XP Power IR2016.indd 2 25036.04 1