Last checked at 21 Feb 2011 07:00
21 February 2011 XP Power Limited ("XP" or "the Group") Annual Results for the year ended 31 December 2010
XP, one of the world's leading developers and manufacturers of critical power control components for the electronics industry, today announces its annual results for the year ended 31 December 2010.
Highlights Year ended Year ended 31 December 31 December 2010 2009 Change Bookings £103.4m £68.4m + 51% Revenue £91.8m £67.3m +36% Gross margin 48.0% 45.0% + 300 bps Adjusted1 profit before income tax £18.7m £8.7m + 115% Adjusted1 profit after tax £15.9m £7.7m + 106%
Diluted earnings per share adjusted1 83.7p 40.8p + 105%
Final dividend per share2 12.0p 12.0p Total dividend per share 33.0p 22.0p + 50%
1 Adjusted for amortisation of intangibles associated with acquisitions of £0.1 million (2009: £0.3 million)
2 The Group changed its dividend payment schedule from a half yearly to a quarterly basis in April 2010. In 2010 the two quarterly dividends for the six month period ending 31 December totalled 20.0p, compared to the single half yearly final dividend for the second half of 2009 of 12.0p, an increase of 67%
* The Group's well-established strategy of developing and manufacturing its own range of market leading products produced another year of record profits and earnings per share * Bookings increased by 51% to £103.4 million (2009: £68.4 million) and revenues increased by 36% to £91.8 million (2009: £67.3 million) * Increased gross margins of 48.0% (2009: 45.0%) driven by continued expansion of XP's own design/own manufacture revenues which represented £ 44.1 million or 48% of total revenues (2009: £ 26.2 million or 39% of total revenues) * Thirty two new product families introduced in the period, including an extensive range of high efficiency "Green Power" products * Chinese manufacturing facility successfully securing new approved vendor agreements from blue chip customers. * Work commenced on a manufacturing site in Vietnam which will double existing manufacturing capacity when it comes on stream in early 2012 * Record earnings and strong cash flows provide basis for an increased total dividend of 33.0p per share for the year up 50% on the prior year * Record levels of new product investment and product launches in the year to underpin growth in future years as new customer programmes reach production phase
Larry Tracey, Executive Chairman, commented:
"The trading environment was favourable throughout 2010 as a result of the recovery in world economic conditions. In these improved markets, I am pleased to report that XP Power's well established strategy of moving up the value chain to develop and manufacture its own range of market leading products has enabled the Group to report another very strong performance.
In 2010 we also continued to invest for the future, further expanding our product range and commencing a further expansion of our production capacity to establish a solid foundation for future revenue and earnings growth."
Enquiries:
XP Power (21 February 2011) +44 (0)20 7638 9571 Larry Tracey, Executive Chairman +44 (0)7785 387142 James Peters, Deputy Chairman +44 (0)7785 353066 Duncan Penny, Chief Executive +65 8322 9520 Citigate Dewe Rogerson +44 (0)20 7638 9571 Kevin Smith/Ged Brumby
XP designs and manufactures power controllers, the essential hardware component in every piece of electrical equipment that converts power from the electricity grid into the right form for equipment to function.
XP typically designs in power control solutions into the end products of major blue chip OEMs, with a focus on the industrial (circa 46% of sales), healthcare (circa 25% sales) and technology (circa 29% of sales) sectors. Once designed into a program, XP has a revenue annuity over the life cycle of the customer's product which is typically 5 to 7 years depending on the industry sector.
XP has invested in research and development and its own manufacturing facility in China, to develop a range of tailored products based on its own intellectual property that provide its customers with significantly improved functionality and efficiency.
Headquartered in Singapore and listed on the Main Market of the London Stock Exchange since 2000, XP serves a global blue chip customer base from 27 locations in Europe, North America and Asia.
For further information, please visit www.xppower.com
Chairman's StatementOverview
The trading environment was favourable throughout 2010 as a result of the recovery in world economic conditions. In these improved markets, I am pleased to report that XP Power's well established strategy of moving up the value chain to develop and manufacture its own range of market leading products has enabled the Group to report another substantial improvement in profitability and earnings per share. Our ongoing commitment to invest in new products was again rewarded as key customer programs won in prior years entered production phase and further growth in the proportion of our own XP branded products in the sales mix drove gross margins to a new record.
Financial
Total orders increased by 51% to £103.4 million (2009: £68.4 million). Total sales increased by 36% to £91.8 million (2009: £67.3 million). Sales of product based on XP Power's own designed/own manufactured product increased by 68% to £ 44.1 million (2009: £26.2 million). Another increase in the proportion of higher margin, own design/own manufactured products in the sales mix helped to drive a further improvement in gross margins to 48.0% (2009: 45.0%). Operating profit increased to £19.7 million (2009: £9.6 million). Diluted adjusted earnings per share grew to 52.6 pence per share in the second half and increased by 105% to 83.7 pence per share for the year (2009: 40.8 pence per share), another record for the Group.
Net debt at the year end was £18.4 million compared to £18.7 million at the end of 2009. Operating cash flow was £10.3 million (2009: £16.3 million) representing 52% of operating income.
Strategic Progress
In mid-2009 the Group achieved a key strategic objective when its second larger manufacturing facility in China began production. With the Chinese factory now operating in excess of 50% of capacity, the Group has commenced construction of a manufacturing site in Vietnam, which should be on stream within 12 months. Combined, these factories will dramatically enhance the Group's ability to secure preferred supplier status with larger customers and increase significantly the proportion of its revenues which come from own design/own manufactured products from the current level of just below 50%.
Dividend
In April 2010 we announced that the Company's dividend payment schedule would change from a half yearly to a quarterly basis, to increase the attractiveness of the Group's shares to certain investors and to smooth cash flows. This has been well received by our shareholders.
Our continued strong financial performance, cash flows and confidence in the Group's prospects have enabled us to consistently increase dividends throughout the year.
The first quarterly payment of 6.0 pence per share was made on 6 July 2010, a second quarterly dividend of 7.0 pence per share was paid 12 October 2010 and a third quarterly dividend of 8.0 pence per share was paid on 7 January 2011. In 2009 an interim dividend of 10.0 pence per share was paid on 9 October 2009 and a final dividend of 12.0 pence per share was paid on 1 April 2010.
In line with our progressive dividend policy, a final dividend of 12.0p per share for the fourth quarter of 2010 is proposed which when combined with the interim dividends for the previous quarters, results in a total dividend of 33.0p per share for the year (2009: 22.0p), an increase of 50%.
Sustainability
In 2010 we committed substantial management and financial resources to reducing our carbon footprint and water usage in line with our goal of becoming the leader in our industry in addressing the effect our operations have on the environment. These efforts will continue through 2011 and 2012 as we seek to assist in achieving the national targets set by the countries in which we operate.
Outlook
In the past year we have established the key ingredients for sustainable above peer group growth. We have the people, the products and the productive capacity which creates a solid foundation for revenue and earnings growth over the coming years.
Larry TraceyExecutive ChairmanChief Executive's Review
2010 was a further record year for XP Power with the previous year's records for own designed/manufactured revenue, margins, earnings and cash flow beaten again in 2010. This underlines what has been achieved as a result of our consistent strategy of moving up the value chain, powered by an increasingly strong pipeline of new leading-edge products, many of which are highly efficient ("Green") and our development as an independent manufacturer. This performance is even more pleasing as much of it has been delivered against a backdrop of difficult economic conditions, demonstrating the resilient nature of our business model.
Our broad and up to date portfolio of class leading products combined with excellent engineering support, and the assured quality and reliability facilitated by our move into manufacturing, is increasingly making us the power converter provider of choice for many large customers.
A record 88% of our revenues came from our own brand products in 2010 (2009: 83%) and 48% of our total revenues are now generated from our own designed/ manufactured products (2009: 39%). These own designed/manufactured products generate significantly higher margins, and give XP Power the capacity to design tailor made power control solutions for specific customer orders making us an increasingly attractive partner for our larger target customers.
Markets
XP Power supplies power control solutions to original equipment manufacturers ("OEMs") who themselves supply the healthcare, technology and industrial markets with high value products. The increasing importance of energy efficiency, for both environmental and economic reasons, the necessity for ever smaller products, the rate of technological change and the increasing proliferation of electronic equipment, all contribute to underpin the strength of medium term demand for XP Power's power conversion products.
The worldwide market for XP Power's products is estimated to be greater than £1.2 billion per annum and we expect it to grow by approximately 17% in the next four years. We estimate that XP Power's global market share grew to around 8% in 2010 compared with around 6.5% in 2009. Across North America and Europe, XP Power currently has around 10% and 12% respectively of our available market, while across Asia we doubled our share to 2% in the period. These estimates illustrate the significant commercial opportunities that remain open to XP Power, and the Board is confident that the Group's competitive advantages over many of its peers will allow it to capitalise on these opportunities.
According to industry sector, 2010 revenues were split: industrial up 47% to £42.2 million (2009: £28.7 million), healthcare up 15% to £22.8 million (2009: £19.8 million) and technology up 43% to £26.8 million (2009: £18.8 million). Healthcare continued to grow robustly, reflecting an ongoing focus on that sector and very strong healthcare product offering. However, its growth rate was surpassed by those of the industrial and technology sectors in the period as these markets recovered from the severe downturn in 2009.
According to geography our 2010 revenues were split: Asia up 22% to £5.6 million (2009: £4.6 million), Europe up 30% to £41.4 million (2009: £31.9 million) and North America up 45% to £44.8 million (2009: £30.8 million). North America was hardest hit during the recession and has therefore shown stronger growth in the recovery. Nevertheless, we are confident we have taken market share in all geographies.
Our major blue chip customers continue to demand market leading, highly reliable products. We maintained a consistent investment in research and development through the year and our product pipeline remains the broadest and freshest in the industry. The attractions of this continually evolving portfolio of market leading products enabled the Group to win a number of new customers in the year, underpinning revenue growth in future years.
Increasingly, the design and manufacturing process of major international OEMs takes place across different continents, with these blue chip companies demanding global support. In response, XP Power has established an international network of offices which offers the necessary customer support across technical sales, design engineering, logistics and operations. This network gives XP Power a competitive advantage over both its smaller competitors, who do not have the scale and geographic reach to serve global customers, and its larger competitors who often lack the operational flexibility to provide excellent service and speed. We believe that this balance offers XP Power the opportunity to further increase its market share, and we believe is one of the main reasons for our success in winning new contracts.
Expanding the International Network
XP Power's mix of quick response capability and global reach is a major competitive advantage. XP Power maintained a network of 27 sales offices spread over North America, Europe and Asia, with a further 16 distributors, supporting its smaller customers, during the year. The size and scope of this network is kept under continuous review to ensure the business remains best placed to capitalise on growth opportunities in each of its geographies.
XP Power has the largest, most technically trained sales force in the industry. Our detailed in-house training programme demands that the sales force pass numerous technology and customer service modules, making them a "value add" partner to our customers' product development teams. The management believes that this gives the business a competitive edge compared to many within its peer group.
The North American network consists of 17 sales offices and an extensive engineering services function, based in Northern California. This network allows XP Power to provide all its major customers with local face to face support and rapid response times. The central engineering services function has established XP Power as a value added partner, allowing it to comprehensively address the demands of its larger customers for complex solutions that can be efficiently integrated into their end equipment, in turn delivering significant savings in cost, time to market and engineering resource.
In Europe, the XP Power network consists of eight sales offices and a further nine distributor offices, providing the same level of customer support as North America. In addition, XP Power has engineering services centres in Germany and the UK, providing some of the largest blue chip conglomerates in Europe with specialist technical expertise and value added services for market leading, complex power control solutions.
The Asian sales activities are run from Shanghai and Singapore, where we also manage a network of seven distributors serving the region. In the medium term we expect revenues derived from Asia to be an increasing proportion of XP Power's worldwide revenues.
Market Leading Technology
A long term commitment to invest in research and development of new products has been the cornerstone of XP Power's growth strategy. This investment has established the broadest, most up to date portfolio of products in the power converter industry.
Research and development spend grew to £4.6 million in 2010 (2009: £3.8 million), its highest level ever, and a record thirty two new product families were introduced in the year, resulting in a number of exciting new customer approvals. Of particular note was the launch of an extensive range of highly efficient "green power" medical external power converters reflecting the trends in that industry sector. These have been extremely well received by our customers with some encouraging early design wins of significant value. This product family adds to our already extensive range of "green power" products.
As the large number of new products released over the last few years are now coming to production and being sampled to customers, the Group expects the rate of new product introductions to slow somewhat in the current year compared to the very high numbers of recent years. While new product introductions will remain at the heart of our activities, our development resources will also be focused on producing modifications to existing products to meet the requirements of individual customers.
Reliability and Manufacturing Capabilities
XP Power's products frequently power critical applications - not least in the healthcare sector - and reliability is a crucial issue for our customers. Our key customers demand the ultimate in terms of quality control to ensure reliability for the life of their equipment. Control of the manufacturing capability is therefore critical to ensure strict management of the production processes and components that go into our products, and also gives us opportunities to reduce our product costs. The capability and performance of our Kunshan facility, which was commissioned in 2009, has been instrumental in winning new programs and customers.
During the year we continued our vertical integration and started small scale production of magnetic components which are a key component of our products. This vertical integration enhances our value proposition to key customers who like to see rigorous control of the supply chain. In addition, it has enabled us to produce quick turnaround magnetic components for our design teams in Singapore, UK and USA to assist in shortening design cycles.
As previously reported, the Group purchased a site in Ho Chi Minh City, Vietnam, which will house the next expansion of our manufacturing capacity. The Vietnam site has sufficient space for the Group to build two factories equivalent to the size of its existing China factory in a phased approach as demand dictates. With the Kunshan facility now running at over 50% capacity, work commenced in December 2010 on the first Vietnam facility, which will double our existing manufacturing capacity. This facility is expected to be completed in early 2012.
The Environment and Sustainability
In 2009 we established an Environmental Committee that immediately set the goal of making XP Power the leader in environmental issues within our industry. Much has been achieved in 2010 and this is set out in detail in the 2010 Environmental Report contained within our Annual Report.
During 2010 we became an Applicant Member of the Electronic Industry Citizenship Coalition (EICC). The EICC is an industry organisation of leading electronics manufacturers which promotes an industry code of conduct for global electronics supply chains to improve working and environmental conditions. It deals with environmental, health and safety, labour standards and business ethics issues. We have publically adopted the Code of Conduct of the EICC and are now active members on both its Environmental Sustainability and Water working groups.
As it is a new build project, our new Vietnamese facility presents us with an excellent opportunity to establish the most environmentally friendly power converter manufacturing facility in the world and we are incorporating green technologies into the plant from the outset.
We have also expanded our ISO14001 Environmental Management certifications around the world. Currently, approximately 80% of our revenues are covered by ISO14001.
During the year we commissioned an independent study to analyse the performance of power conversion products used in a typical hospital in order to understand the efficiency levels and standby power consumption of the electronic power converters typically used in this setting. The survey provided a host of fascinating findings.
Over 1,000 power converters were deployed in the medical equipment used in the hospital, consuming 306 MWh per year, which represented approximately 8% of the total hospital power consumption. The average efficiency of the power converters used in this equipment was only 77%. Few of these power converters contained any functionality to reduce power consumption while in standby mode.
In comparison, XP Power's most efficient medical power converters are up to 95% efficient and have low standby power functionality. Inekon, the energy management and energy efficiency consultant, has estimated that the hospital in question could reduce its power consumption from medical devices by up to 32,500 kW hours per year, or 11%, if the equivalent XP Power converters were used. This represents CO2 emissions of 18.6 tons and substantial ongoing cost savings, with the energy wasted reduced by almost half.
With this compelling data, XP Power now has the hard evidence to help convince its customers of the benefits of incorporating more high efficiency power converters into their products. This is undoubtedly the biggest beneficial impact XP Power can have on the environment.
Investing in Customer Support
In a competitive market place, excellent customer support and service is critical. XP Power has developed a network of relationship managers and sales engineers to manage long-term customer relationships across three continents. The Group has worked hard to build a sales culture that can successfully manage complicated relationships and has developed sophisticated proprietary customer relationship management tools to effectively manage the sales process. The management regards these tools and their method of utilisation as a significant source of competitive advantage over the Group's larger competitors.
Our Business Model
XP Power's business model exhibits the following characteristics:
* Exposure to a broad cross section of end markets - Technology, Industrial and Healthcare - but with no exposure to consumer electronics; * A diverse customer base of over 5,000 active customers, with no one customer accounting for more than 5% of revenue; * Powerful proprietary customer relationship management tools which allow the efficient management of our customer base and identification of pricing and product trends that enable the development of appropriate, innovative new products; * An established pipeline of new class leading "green power" products which operate at high efficiency; * Attractive margins and lower capital investment requirements when compared to many manufacturing industries, resulting in strong free cash flow and gross margins that are amongst the highest in the industry; and, * Although design cycles are often long - typically an average period of 16 months from identifying a program to receiving the first production orders - once our power converters are approved for use in our customer's end equipment XP Power enjoys a revenue annuity for the lifetime of the customer's equipment, which is typically five to seven years.
It is this business model that ultimately allows the Group to grow and change while at the same time maintaining strong profitability and cash flow to fund returns to its shareholders.
Outlook
XP Power has enjoyed another excellent year, building its reputation in the industry and taking market share. The consistent application of our strategy of moving up the value chain, powered by a strong pipeline of new leading-edge products and our move into manufacturing has again generated a substantially improved result.
We remain confident about the fundamental medium term growth drivers which underpin the markets in which we operate. With the successful transition of its business model to higher margin, own IP product sales and the continued development of a state of the art independent manufacturing capability, XP Power remains in a strong position to capitalise on its growth ambitions.
Duncan PennyChief ExecutiveConsolidated Income StatementFor the year ended 31 December 2010 Note 2010 2009 Revenue 2 91.8 67.3 Cost of sales (47.7) (37.0) Gross profit 44.1 30.3 Expenses Distribution and marketing (20.0) (17.4) Administrative (0.7) (0.8) Research and development (3.7) (2.6) Other operating income - 0.1 Operating profit 19.7 9.6 Finance cost (1.1) (1.2) Profit before income tax 2 18.6 8.4 Income tax expense 3 (2.6) (0.8) Profit for the year 16.0 7.6 Profit attributable to: Owners of the parent 15.8 7.4 Non controlling interests 0.2 0.2 Profit for the year 16.0 7.6 Earnings per share Attributable to owners of the parent (pence per share) - Basic 5 83.9 39.4 - Diluted 5 83.2 39.3 - Diluted adjusted 5 83.7 40.8Consolidated Balance SheetAt 31 December 2010£ Millions Note 2010 2009 ASSETS Current Assets Cash and cash equivalents 5.0 4.0 Trade and other receivables 15.6 11.0 Other current assets 1.5 1.2 Inventories 21.0 10.7 Total current assets 43.1 26.9 Non-current assets Interest in associates 0.1 0.1 Property, plant and equipment 8.3 7.1 Goodwill 30.8 31.0 Intangible assets 5.3 4.5 ESOP loans to employees 2.4 2.6 Deferred income tax assets 0.8 0.3 Total non-current assets 47.7 45.6 Total assets 90.8 72.5 LIABILITIES Current liabilities Trade and other payables 15.5 9.1 Current income tax liabilities 3.4 2.5 Derivative financial instruments 0.4 0.3 Borrowings 6 12.7 3.9 Total current liabilities 32.0 15.8 Non-current liabilities Borrowings 6 10.7 18.8 Deferred income tax liabilities 1.8 1.8 Provision for deferred contingent 3.5 3.6consideration Total non-current liabilities 16.0 24.2 Total liabilities 48.0 40.0 NET ASSETS 42.8 32.5 EQUITY Share capital 27.2 27.2 Merger reserve 0.2 0.2 Treasury shares (1.0) (0.9) Hedging reserve (0.4) (0.2) Translation reserve (7.6) (7.4) Retained earnings 24.2 13.3 42.6 32.2 Minority interests 0.2 0.3 TOTAL EQUITY 42.8 32.5Consolidated Cash Flow StatementFor the year ended 31 December 2010£ Millions 2010 2009 Cash flows from operating activities Profit after tax 16.0 7.6 Adjustments for - Income tax expense 2.6 0.8 - Amortisation and depreciation 1.9 1.6 - Finance cost 1.1 1.2 Change in the working capital: - Inventories (10.3) 6.9 - Trade and other receivables (4.9) 1.8 - Trade and other payables 6.2 (3.1) - Income tax paid (2.3) (0.5) Net cash provided by operating activities 10.3 16.3 Cash flows from investing activities Purchases and construction of (2.1) (1.7)property, plant and equipment Capitalised research and (1.7) (1.5)development expenditure ESOP loan repaid 0.2 0.1 Net cash used in investing activities (3.6) (3.1) Cash flows from financing activities Proceeds from borrowings (3.2) (1.3) Purchase of treasury shares by ESOP (0.2) - Interest paid (0.9) (1.1) Dividends paid to equity holders of (4.8) (4.0)the Company Dividends paid to minority shareholders (0.3) (0.1) Net cash provided by financing activities (9.4) (6.5) Effects of currency translation (0.3) 0.9 Net (decrease)/increase in (3.0) 7.6cash and cash equivalents Cash and cash equivalents at 3.9 (3.9)beginning of financial year Effects of currency translation 0.1 0.2on cash an cash equivalents Cash and cash equivalents at 1.0 3.9end of financial year Notes to the Annual Results StatementFor the year ended 31 December 2010
1. Basis of preparation
These financial statements are presented in Pounds Sterling and have been prepared using the accounting principles incorporated within International Financial Reporting Standards (IFRS) as adopted by the European Union.
2. Segmental reporting
The Group is organised on a geographic basis. The Group's products are a single class of business; however the Group is also providing sales by end market to assist the readers of this report.
The geographical segmentation is as follows:
£ Millions 2010 2009 Revenue Europe 41.4 31.9 North America 44.8 30.8 Asia 5.6 4.6 Total Revenue 91.8 67.3 Segment result Europe 7.4 5.3 North America 9.6 4.0 Asia 1.0 0.9 Segment result 18.0 10.2 Research and development costs (3.7) (2.6) Finance income and cost (1.1) (1.2) Corporate recovery from 5.4 2.0operating segment Profit before tax 18.6 8.4 Tax (2.6) (0.8) Total Profit 16.0 7.6Analysis by end market
The revenue by end market was as follows:
Year to 31 December 2010 Year to 31 December 2009 £ Millions Europe North Asia Total Europe North Asia Total America America Technology 10.7 12.6 3.5 26.8 8.7 8.9 1.2 18.8 Industrial 22.1 18.6 1.5 42.2 15.4 10.2 3.1 28.7 Healthcare 8.6 13.6 0.6 22.8 7.8 11.7 0.3 19.8 Total 41.4 44.8 5.6 91.8 31.9 30.8 4.6 67.33. Income taxes£ Millions 2010 2009 Singapore corporation tax - current year 1.0 0.5 - adjustment in respect of prior year (0.1) - Overseas corporation tax - current year 2.4 1.1 - adjustment in respect of prior year (0.2) (1.2) Total current tax 3.1 0.4 Deferred tax (0.5) 0.4 Tax charge for the year 2.6 0.8The differences between the total tax shown above and the amount calculated byapplying the standard rate of Singapore corporate tax to the profit before taxare as follows:£ Millions 2010 2009 Profit before tax 18.6 8.4 Tax on profit on ordinary activities 3.2 1.4at standard Singapore tax rate of 17% Lower than standard Singapore tax rate (0.6) (0.3) Higher rates of overseas corporation tax 1.6 0.9 Deduction for gains on employee share options (1.1) - Prior year adjustments (0.5) (1.2) Tax charge for the year 2.6 0.8
The Group has an unrecognised deferred tax asset of £1.6 million (2009: £2.6 million). The eventual recognition of this asset is dependent of the assessment of our subsidiaries' tax positions by the relevant tax authorities. The Company is in discussions with the tax authorities in the US regarding a potential contingent income tax liability of £2.85 million ($4.4 million). Having considered the matter and after seeking external advice the directors' opinion is that the tax authorities claims are substantially unfounded. Pending the outcome of the ongoing discussions, any resulting assessments and potential tax liability, if any, could be materially different from the amount set out above.
4. Dividends
Amounts recognised as distributions to equity holders in the period
2010 2009 Pence per £ Pence per £ share Millions share Millions Prior year final dividend 12.0 * 2.3 11.0 2.1paid First Quarter paid 6.0 ^ 1.2 - - Second Quarter paid 7.0 ^ 1.3 10.0 * 1.9 Total 25.0 4.8 21.0 4.0* Dividends in respect of 2009 (22.0p)^ Dividends in respect of 2010 (33.0p)
A dividend of 8.0p per share was paid in respect of the Third Quarter of 2010 on 7 January 2011.
The proposed final dividend for 2010 of 12.0 pence per share is subject to approval by shareholders at the Annual General Meeting scheduled for 4 April 2011 and has not been included as a liability in these financial statements. It is proposed that the final dividend be paid on 8 April 2011 to members on the register as at 18 March 2011.
5. Earnings per share
The calculations of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent are based on the following data:
2010 2009 £ Millions £ Millions Earnings Earnings for the purposes of basic and diluted earnings per share (profit for the year attributable to 15.8 7.4equity shareholders of the parent) Amortisation of intangibles 0.1 0.3associated with acquisitions Earnings for adjusted earnings per share 15.9 7.7 Number of shares Weighted average number of shares 18,830 18,788for the purposes of basic earnings per share (thousands) Effect of potentially dilutive 170 64share options (thousands) Weighted average number of shares for the purposes of dilutive earnings per share (thousands) 19,000 18,852 Earnings per share from operations Basic 83.9p 39.4p Diluted 83.2p 39.3p Diluted adjusted 83.7p 40.8p6. Borrowings
The borrowings are repayable as follows:
£ Millions 2010 2009 On demand or within one year 12.7 3.9 In the second year 3.9 18.8 In the third year 3.9 - In the fourth year 2.9 - 23.4 22.7 Less: Amounts due for settlement (12.7) (3.9)within 12 months (shown under current liabilities) Total repayable after 12 months 10.7 18.8
The other principal features of the Group's borrowings are as follows:
1. Bank overdrafts are repayable on demand. The bank overdrafts are secured on the assets of the Group. At 31 December 2010, the Group had an overdraft of £ 4.0 million (2009: £0.1 million). In September 2010 the Group renewed its annual working capital facility, which is US Dollar 15 million, priced at LIBOR plus a fixed margin of 2.5%. 2. The Group previously had a term debt facility which was due to expire at the end of September 2011. This facility had repayments at the end of each quarter of US Dollars 1.5 million and US Dollars 27.0 million would have been due to be repaid at the expiry of this facility at the end of September 2011. In December the Group made arrangements with its bankers, Bank of Scotland plc, to renew this facility in the amount of US Dollars 18.0 million for a further three years expiring at the end of September 2014. The quarterly repayments remain at US Dollars 1.5 million and the pricing is at LIBOR plus a margin of between 1.75 to 2.25% depending on the ratio of Net Debt to EBITDA. The Company entered into an interest rate swap in respect of 85% of the value of the original US$36 million term debt which fixes the floating LIBOR rate at 1.99%. The interest rate on existing debt is therefore fixed at 3.99%. This interest rate swap expires at the end of September 2011. 3. The Group has pledged all assets as collateral to secure banking facilities granted to the Group.
7. Principal risks and uncertainties
Like many other international businesses the Group is exposed to a number of risks which might have a material effect on its financial performance. The Board has overall responsibility for the management of risk and sets aside time at its meetings to identify and address risks.
Risks Specific to the Industry in which the Group Operates
Fluctuations in foreign currency
The Group deals in many currencies for both its purchases and sales including US Dollars, Euro and its reporting currency Pounds Sterling. In particular, North America represents an important geographic market for the Group where virtually all the revenues are denominated in US Dollars. The Group also sources the majority of its product in US Dollars. The Group therefore has an exposure to foreign currency fluctuations. This could lead to material adverse movements in reported earnings.
Competition
The power supply market is diverse and competitive in Europe, North America and Asia. The Directors believe that the development of new technologies could give rise to significant new competition to the Group, which may have a material effect on its business. At the lower end of the Group's target market the barriers to entry are low and there is, therefore, a risk that competition could quickly increase particularly from emerging low cost manufacturers in Asia.
Risks Specific to the GroupDependence on key personnel
The future success of the Group is substantially dependent on the continued services and continuing contributions of its Directors, senior management and other key personnel. The loss of the services of any of their respective executive officers or other key employees could have a material adverse effect on their businesses.
Loss of key customers/suppliers
The Group is dependent on retaining its key customers and suppliers. Should the Group lose a number of its key customers or a key supplier this could have a material impact on the Group's business financial condition and results of operations. However, for the year ended 31 December 2009, no one customer accounted for more than 2.5% of revenue.
Shortage, non-availability or technical fault with regard to key electronic components
The Group is reliant on the supply, availability and reliability of key electronic components. If there is a shortage, non availability or technical fault with any of the key electronic components this may impair the Group's ability to operate its business efficiently and lead to potential disruption to its operations and revenues.
Fluctuations of revenues, expenses and operating results
The revenues, expenses and operating results of the Group could vary significantly from period to period as a result of a variety of factors, some of which are outside its control. These factors include general economic conditions, adverse movements in interest rates, conditions specific to the market, seasonal trends in revenues, capital expenditure and other costs, the introduction of new products or services by the Group, or by their competitors. In response to a changing competitive environment, the Group may elect from time to time to make certain pricing, service, marketing decisions or acquisitions that could have a short term material adverse effect on the Group's revenues, results of operations and financial condition.
Management stretch
The management team is likely to be faced with increased challenges associated with any sustained macroeconomic recovery. With the financial markets uncertain the management team must also be able to adapt to the changing conditions and implement corrective measures as they are needed. It could adversely affect the Group if the management team is not able successfully to cope with these challenges.
Information Technology Systems
The business of the Group relies to a significant extent on IT systems used in the daily operations of its operating subsidiaries. Any failure or impairment of those systems or any inability to transfer data onto any new systems introduced could cause a loss of business and/or damage to the reputation of the Group together with significant remedial costs.
Risks relating to taxation of the Group
The Group is exposed to corporation tax payable in many jurisdictions including the USA where the effective rate can be as high as 40.0%, the UK where the corporation tax rate is currently 28.0% and a number of European jurisdictions where the rates vary between 25.5% and 38.7%. In addition, the Group has manufacturing activities in China and Hong Kong where the corporation tax rates are 24% and 17.5% respectively and sales companies in Singapore and Switzerland where the corporation tax rates are 17.0% and 20.0% respectively.
The effective tax rate of the Group is affected by where its profits fall geographically. The Group effective tax rate could therefore fluctuate over time. This could have an impact on earnings and potentially its share price.
Further, the Group's tax position includes judgments about past and future events and relies on estimates and assumptions. Although we believe that the estimates and assumptions supporting our positions are reasonable and are supported by external advice, our ultimate liability in connection with these matters will depend upon the assessments raised and the result of any negotiations with the relevant tax authorities. If the actual taxes and penalties imposed exceed the amounts we have accrued, it could adversely affect our financial position, results and cash flows.
8. Responsibility Statement
The Directors' confirm to the best of their knowledge and belief that this condensed set of financial statements:
- gives a fair view of the assets, liabilities, financial position and profit of the Group; and
- includes a fair review of the information required by the Disclosure and Transparency Rules.
9. Other information
XP Power Limited (the "Company") is listed on the London Stock Exchange and incorporated and domiciled in Singapore. The address of its registered office is 401 Commonwealth Drive, Lobby B, #02-02, Haw Par Technocentre, Singapore 149598.
The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2010 or 2009. The financial information for the year ended 31 December 2009 is derived from the XP Power Limited statutory accounts for the year ended 31 December 2009, which have been delivered to the Accounting and Corporate Regulatory Authority in Singapore. The auditors reported on those accounts; their report was unqualified. The statutory accounts for the year ended 31 December 2010 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Accounting and Corporate Regulatory Authority in Singapore following the Company's Annual General Meeting.
Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs later this month.
This announcement was approved by the directors on 21 February 2011.
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