Last checked at 22 Feb 2010 07:33
22 February 2010 XP Power Limited ("XP" or "the Group")
Annual Results for the year ended 31 December 2009
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 2009.
Highlights Year ended Year ended 31 December 2009 31 December 2008 Revenue £67.3m £69.3m Gross profit £30.3m £30.6m Gross margin 45.0% 44.2% Adjusted (*) profit before tax £8.7m
£8.0m
Adjusted (*) profit after tax £7.7m
£6.6m
Diluted earnings per share adjusted (*) 40.8p 34.8p Final dividend per share 12.0p 11.0p Total dividend per share 22.0p 21.0p
(*) Adjusted for amortisation of intangibles associated with acquisitions of £ 0.3 million (2008: £0.2 million) and non-cash foreign exchange gain of nil (2008: £2.4 million)
The Group's well-established strategy of developing and manufacturing its own range of market leading products produced record earnings per share for the year
Increased gross margins of 45.0% (2008: 44.2%) driven by continued expansion of in-house developed, XP brand products, which now represent 83% of revenues (2008: 78%)
Revenues from products based on XP's own intellectual property increased to £ 55.9 million (£53.9 million)
New Chinese manufacturing facility, successfully securing new approved vendoragreements from blue chip customers. Production volumes increased rapidly
inQ4 2009
Inventory reduction and strong operating cash flows deliver significant reduction in net debt to £18.7 million (2008: £27.8 million)
Record earnings and strong cash flows provide basis for an increased final dividend of 12.0p per share
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
Current trading encouraging, with most markets now in recovery
Larry Tracey, Executive Chairman, commented:
"Throughout the past two years of economic turmoil, we have increased the levelof investment in our products, our people and capital equipment. We start thenew decade in a strong position in our industry, which now appears to berecovering rapidly. XP Power's combination of a market leading productportfolio and low cost manufacturing capability should allow shareholders tobenefit from above average earnings and dividend growth as the recovery takeshold." Enquiries: XP Power (22 February 2010) +44 (0)20 7638 9571
Larry Tracey, Executive Chairman +44 (0)7785 387142
James Peters, Deputy Chairman +44 (0)7785 353066Duncan 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 componentin every piece of electrical equipment that converts power from the electricitygrid into the right form for equipment to function. XP typically designs in power control solutions into the end products of majorblue chip OEMs, with a focus on the industrial (circa 40% of sales), healthcare(circa 30% sales) and technology (circa 30% of sales) sectors. Once designedinto a program, XP has a revenue annuity over the life cycle of the customer'sproduct which is typically 5 to 7 years depending on the industry sector. XP has invested in research and development and its own manufacturing facilityin China, to develop a range of tailored products based on its own intellectualproperty that provide its customers with significantly improved functionalityand 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 Statement As expected, the trading environment remained challenging throughout 2009 as aresult of the severe deterioration in world economic conditions. Against thisbackdrop, I am pleased to report that XP Power's well established strategy ofmoving up the value chain to develop and manufacture its own range of marketleading products has enabled the Group to again report record earnings pershare for the year. Our ongoing commitment to invest in new products was againrewarded as key customer programs won in prior years entered production phaseand further growth in the proportion of our own XP branded products in thesales mix drove gross margins to record levels. The successful commissioning of our second, larger, manufacturing facility andrecord levels of both new product investment and product launches, wereessential to seed the ground for future growth as the business looks to buildon this record performance in 2010. This robust performance along with diligent control of our inventories enabledthe Group to close the year with significantly reduced levels of debt, placingthe Group in a strong position to capitalise on the signs of recovery we arenow seeing in our market. Financial Total sales decreased by 3% to £67.3 million (2008: £69.3 million). However,sales of product based on XP Power's own intellectual property ("IP") increasedby 4% to £55.9 million (2008: £53.9 million), an all time high. Sales based onXP Power's IP are now 83% of total sales, compared to 78% in 2008 and 73% in2007 and this underlines the significant and consistent progress achieved, assix years ago own IP sales were less than 50% of the total. Ongoing improvementin the sales mix helped to drive a further improvement in gross margins to45.0% (2008: 44.2%). Operating profit increased to £9.6 million (2008: £9.3million after excluding £2.4 million of one off non-cash foreign exchangegains). Adjusted Earnings Per Share increased by 17% to 40.8 pence per share(2008: 34.8 pence per share), a record for the Group. Our net debt has reduced from £27.8 million in 2008 to £18.7 million at the endof 2009. Operating cash flow was up 92% to £16.3 million (2008: £8.5 million)representing 170% of operating income. Strategic Progress XP Power has been successfully repositioning itself since flotation in 2000,transitioning from a distributor of electronic components to a designer andmanufacturer of best in class power converters based on its own intellectualproperty. The addition of a global sales function, and an in-house designcapability that has developed the broadest, freshest product range in itsindustry, have enabled the Group to establish a leadership position in itsmarket while simultaneously delivering a resilient financial performance indifficult economic conditions. The majority of sales are now from productsbased on XP Power's own intellectual property, which generate higher marginsand gives XP Power the ability to deliver power converter solutions whichreduce its customers' overall new product development costs. In mid-2009 the Group achieved a key strategic objective when its second largermanufacturing facility in China began production, dramatically enhancing theGroup's ability to secure preferred supplier status with larger customers. With the Chinese manufacturing facility now fully on stream, XP Power has thecapability to significantly increase the proportion of its revenues which comefrom in-house manufactured products from the current level of circa 20%, whichwill drive both future sales growth, as we increase our penetration of keycustomer programmes, and a further increase in margins. Dividend
In line with our progressive dividend policy, a final dividend of 12.0p per share (2008: 11.0p) is proposed, which when combined with the interim dividend of 10.0p, this gives a total dividend of 22.0p for the year (2008: 21.0p).
Sustainability XP Power seeks to reduce its impact on the environment both of its ownoperations and, crucially, its products. In 2009, we formalised ourenvironmental responsibility efforts by establishing the EnvironmentalCommittee, the members of which have been selected for their knowledge of andcommitment to sustainability. Their report to shareholders will be set out
inour Annual Report. Outlook Throughout the past two years of economic turmoil, we have increased the levelof investment in our products, our people and capital equipment. We start thenew decade in a strong position in our industry, which now appears to berecovering rapidly. We will continue our drive to introduce industry leadingnew products which have both the smaller footprints and the lower levels ofpower consumption that our customers seek. XP Power's combination of a marketleading product portfolio and low cost manufacturing capability should allowshareholders to benefit from above average earnings and dividend growth as
therecovery takes hold. Larry TraceyExecutive Chairman Chief Executive's Review
2009 was another record year for XP Power beating the previous records for ownIP revenue, margins, earnings and cash flow set in 2008. This has beenachieved as a result of our consistent strategy of moving up the value chain,powered by an increasingly strong pipeline of new leading-edge products.Notably, we achieved this in a period which is being widely referred to as the"Great Recession". At the same time we have been able to significantly reduceour inventories which combined with our cash generative business model enabledus to reduce our net debt to £18.7 million at the end of 2009 compared to
£27.8million at the end of 2008.
Our continued focus on the introduction of new products compensated for theprofound weakness in industrial markets that characterised the period, as newcustomer programs featuring products we had introduced in preceding years,entered the production phase. This was particularly the case in the healthcaresector, where we have placed great emphasis over the past few years. Theresults of new product introductions and our move into manufacturing are nowpaying off. Despite the economic downturn, we maintained new product investmentand new product introductions at record levels in the year, underpinningrevenue growth for 2010 and future years. As the tenth anniversary of our Stock Market listing as a reseller ofelectronic components approaches, we have successfully completed thetransformation of XP Power into a technology led business with an independentmanufacturing capability. This transformation of the business model means thatthe majority of sales are now generated by products based on our own IP, whichgenerate significantly higher margins, and gives XP Power the capacity todesign tailor made power control solutions for specific customer orders. Arecord 83% of our revenues came from our own brand products in 2009 (2008:
78%). Markets XP Power supplies power control solutions to original equipment manufacturers("OEMs") who themselves supply the healthcare, technology and industrialmarkets with high value products. Notwithstanding the current economicbackdrop, the increasing importance of electronic component energy efficiency,for both environmental and economic reasons, the necessity for ever smallerproducts, the rate of technological change and the increasing proliferation ofelectronic equipment, all contribute to underpin the strength of medium termdemand for XP Power's power conversion products. The worldwide market for XP Power's products was estimated to be greater than £1 billion and we expect it to grow by approximately 17% in the next fouryears. Currently, XP Power's global market share is around 6.5%. AcrossEurope and North America, XP Power currently has around 10% of the market whileacross Asia it has only 1%. This illustrates the number of significantcommercial opportunities open to XP Power, and the Board is confident that theGroup's competitive advantages over many of its peers will allow it tocapitalise on these opportunities. Our major blue chip customers continue to demand market leading, highlyreliable products. Our consistent investment in research and development hasestablished the broadest, freshest product pipeline in the industry. Thiscontinually evolving portfolio of market leading products, combined with theestablishment of a manufacturing capacity, has enabled us to penetrate a numberof new customers which will drive our revenues in future years. Increasingly, the design and manufacturing process of major international OEMstakes place across different continents, with these blue chip companiesdemanding global support. Over the past few years, XP Power has established aninternational network of offices which offers this necessary customer supportacross 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 increase its market share, and is one of the main reasons for our success in winning the new contracts, which have in part mitigated the effects of the global downturn in 2009.
Expanding the international network
XP Power's mix of quick response capability and global reach is a majorcompetitive advantage. Currently, XP Power has a network of 27 sales officesspread over North America, Europe and Asia, with a further 19 distributors,supporting its customers. The management are constantly reviewing ways inwhich they can increase this network of offices to help the business capitaliseon growth opportunities in each of its geographies. XP Power has the largest, most technically trained sales force in theindustry. Our detailed in-house training programme demands that the salesforce pass numerous technology and customer service modules. This means thatthe sales force are value add partners to our customers' product developmentteams. The management believes that this gives the business a competitive edgecompared to many within its peer group. The North American network consists of 17 sales offices and an extensiveengineering services function, based in Northern California. This networkallows XP Power to provide all its major customers with local face to facesupport and rapid response times. The central engineering services function hasestablished XP Power as a value added partner, allowing it to comprehensivelyaddress the demands of its larger customers for complex solutions that can beefficiently integrated into their end equipment, in turn delivering significantsavings in cost, time to market and engineering resource. In Europe, the XP Power network consists of nine sales offices and a furthernine distributor offices, providing the same level of customer support as inNorth America. In addition, XP Power has engineering services centres inGermany and the UK, providing some of the largest blue chip conglomerates inEurope with specialist technical expertise and value added services for marketleading, complex power control solutions. The Asian sales activities are run from Singapore, where we also manage anetwork of seven distributors serving the region. In 2009, XP Power continuedto widen its commercial interests in Asia to capitalise on two importantcommercial opportunities. First, it will allow XP Power to continue to enhancesupport to the Asian design centres of its major European and North Americancustomers. Second, it will allow the Group to address demand from Asiancompanies for power control components which meet European and North Americanlegislation. In the medium term we expect revenues derived from Asia to be anincreasing proportion of XP Power's worldwide revenues. Market leading technology
A consistent and substantial investment 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. XP Power has a collaborative relationship with many of its customers and in some cases the design process is started directly in response to a future customer requirement.
Research and development spend grew to £3.7 million in 2009, its highest level ever, and a record thirty new product introductions were made in the year, resulting in a number of exciting new customer approvals. Of particular note is our CCM250 which at 95% efficiency is considered to be the most efficient power converter of its type available on the market today. This leading edge product has already enabled us to win some significant business with major new customers.
XP Power opened a new design centre in Singapore during 2008, to work alongsidethe design centres in North America and the UK. Asia is an increasinglyimportant growth market for XP Power and establishing a significant researchfunction in this region has helped the company capitalise on the evolvingdemands of this market. The Singapore design centre made a significantcontribution in 2009, introducing two new product families.
The Group expects to maintain this progress with the release of a further 35 new product ranges in 2010, which should underpin revenues in future years.
Reliability and manufacturing capabilities
XP Power's products frequently power critical applications - not least in thehealthcare sector - and reliability is a crucial issue for our customers. Ourkey customers demand the ultimate in terms of quality control to ensurereliability for the life of their equipment. In 2005, the Group recognised anopportunity to expand its value proposition to key target customers by movinginto manufacturing at a time when many of its competitors were outsourcingtheir manufacturing. Having control of manufacturing activities not only allowsus to strictly manage the production processes and components that go into ourproducts, as demanded by our larger customers, but also gives us opportunitiesto reduce our product costs. Our performance in 2009, particularly in thehealthcare sector, is evidence that this strategy is starting to pay off. To implement this strategy XP Power established a Chinese manufacturing jointventure with Fortron Source in 2006, before taking 100% control in early 2008. Since taking over the facility, significant investment has been made inupgrading the equipment set and manufacturing capacity, and the operationalmanagement team has been strengthened. This culminated in the commissioning ofa brand new state of the art facility on the existing site at Kunshan in June2009.
Production volumes at the facility increased rapidly in the last quarter of 2009. As well as helping to meet the increasing demand for higher margin products based on XP Power's own IP, the move into manufacturing has enabled XP Power to become an approved vendor to a number of new blue chip customers, which will help drive revenue growth going forward. Our new manufacturing facility achieved a number of successful audit qualifications from both existing and prospective blue chip customers during the period. For more details relating to our class leading manufacturing please refer to our Annual Report.
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.
It is not unusual for our sales engineers to be dealing with different elements of the customer's team across three continents, for just a single program. The Group has worked hard to build a sales culture that can successfully manage these complicated relationships and has developed sophisticated proprietary customer relationship management tools to effectively manage the sales process.
These tools allow the Group to track the progress of every customer programfrom its identification, quotation, sampling, to approval and, finally, itssuccessful move into production. This allows the Company to coordinate betweendifferent customer sites and share important information, thereby deliveringexcellent customer service, as well as being a highly effective tool to managea large sales force which is geographically dispersed.
The management regards these tools and their method of utilisation as a significant source of competitive advantage over the Group's larger competitors.
Robust 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 6,000 active customers, with no one customer accounting for more than 3% 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.
-Attractive margins and lower capital investment requirements when compared toother manufacturing industries, resulting in strong free cash flow and grossmargins that are amongst the highest in the industry.- Although design cycles are often long - typically an average period of 16months from identifying a program to receiving the first production orders -once our power converters are approved for use in our customer's end equipmentXP 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 changewhile at the same time maintaining strong profitability and cash flow to fundreturns to its shareholders. Legislation
There is an increasing volume of legislation affecting the power converterindustry, driven by a desire to eliminate hazardous chemicals from electronicproducts and by the need to reduce the amount of energy these products consumein use, to reduce or eliminate adverse environmental impacts. We are fullysupportive of these legislative initiatives and in response believe we areleading the industry in developing more efficient power converters. As notedabove our recently launched CCM250 is considered to be the most efficient powerconverter of its type in the market which is an incredible 95% efficient.
Energy efficiency is becoming an increasingly important and topical issue.
This is reflected in the operating standards to which power converters need to be designed to meet the new and ever expanding regulation and legislation.
Management believe that this increase in regulation is positive for XP Power,along with some of its larger peers, since many of the smaller players in theindustry do not currently have the scale, resources or expertise to developproducts which satisfy these tighter standards. The significant investment inresearch and development made over the past few years means that XP Poweralready has many products which adhere to the most demanding of theseoperational standards and regulations. Further investment will continue to bemade to preserve the technological edge which XP Power's products enjoy overmany of its competitors. During 2009 the Board decided to increase the emphasis XP Power places onenvironmental issues with the goal of becoming the clear leader in its industryon environment and sustainability matters. An Environmental Committee has beenestablished and its report is set out in our Annual Report. Outlook XP Power has entered the new financial year in excellent shape - the businesshas successfully ridden the economic storm of 2009 successfully and deliveredrecord margins and earnings for a second successive year. Profits generated byour industry leading product pipeline and new programs that came on stream in2009, particularly in the healthcare sector, have meant that unlike many othercompanies we have not had to cut costs and headcount in our business to thedetriment of its medium and long term prospects. In fact, we have been able toincrease the level of investment in our products and people, and expand ourmanufacturing capabilities while closing the year with lower net debt than
whenwe entered 2009.
We remain confident about the fundamental medium term growth drivers whichunderpin the markets in which we operate. The successful refocus of thebusiness model on higher margin, own IP product sales and the development of astate of the art independent manufacturing capacity have placed XP Power in astrong position to capitalise on its growth ambitions and prosper, even in themost difficult economic conditions. Duncan PennyChief Executive Consolidated Income Statement
for the financial year ended 31 December 2009
Note 2009 2008 Revenue 2 67.3 69.3 Cost of sales (37.0) (38.7) Gross profit 30.3 30.6 Expenses Distribution and marketing (17.4) (18.5) Administrative (0.8) (0.8) Research and development (2.6) (2.9) Other operating income 0.1 0.9 Operating profit 9.6 9.3
Non-cash foreign exchange gain -
2.4 Finance income - 0.2 Finance cost (1.2) (1.7) Profit before tax 2 8.4 10.2 Income tax expense 3 (0.8) (1.2) Profit after tax 7.6 9.0 Profit attributable to:
Equity holders of the Company 7.4
8.8 Minority interests 0.2 0.2 Profit after tax 7.6 9.0 Earnings per share
Attributable to equity holders of the Company (pence per share)
- Basic 5 39.4 46.5 - Diluted 5 39.3 46.4 - Diluted adjusted 5 40.8 34.8 Consolidated Balance Sheet as at 31 December 2009 £ Millions Note 2009 2008 ASSETS Current Assets Cash and cash equivalents 4.0 3.4
Derivative financial instruments - 1.0
Trade and other receivables 11.0 12.1 Other current assets 1.2 1.8 Inventories 10.7 17.5 Total current assets 26.9 35.8 Non-current assets Interest in associates 0.1 0.1
Property, plant and equipment 7.1 6.7
Goodwill 31.0 29.9 Intangible assets 4.5 3.6 ESOP loans to employees 2.6 2.7 Deferred income tax assets 0.3 0.1 Total non-current assets 45.6 43.1 Total assets 72.5 78.9 LIABILITIES Current liabilities Trade and other payables 9.1 12.3
Current income tax liabilities 2.5 3.1 Derivative financial instruments 0.3 -
Bank loans and overdraft 6 3.9 7.3 Total current liabilities 15.8 22.7 Non-current liabilities Borrowings 6 18.8 23.9
Deferred income tax liabilities 1.8 1.4 Provision for deferred contingent consideration 3.6 1.9
Total non-current liabilities 24.2 27.2 Total liabilities 40.0 49.9 NET ASSETS 32.5 29.0 EQUITY Share capital 27.2 27.2 Merger reserve 0.2 0.2 Treasury shares (0.9) (0.8) Hedging reserve (0.2) 1.0 Translation reserve (7.4) (8.5) Retained earnings 13.3 9.7 32.2 28.8 Minority interests 0.3 0.2 TOTAL EQUITY 32.5 29.0
Consolidated Cash Flow Statement for the year ended 31 December 2009
£ Millions 2009 2008
Cash flows from operating activities Profit after tax 7.6 9.0 Adjustments for - Income tax expense 0.8 1.2 - Amortisation and depreciation 1.6 1.6 - Finance cost 1.2 1.5
Change in the working capital, net effects from acquisition of subsidiary - Inventories 6.9 (6.6) - Trade and other receivables 1.8 (0.5) - Trade and other payables (3.1) 3.3 - Income tax paid (0.5) (1.0)
Net cash provided by operating activities 16.3 8.5
Cash flows from investing activities Acquisition of a subsidiary, net of cash acquired - (1.0) Purchases and construction of property, plant and
equipment (1.7) (3.6)
Capitalised research and development expenditure (1.5) (1.0) Proceeds from disposal of plant and equipment - 0.1
ESOP loan repaid 0.1 - Interest received - 0.1
Net cash used in investing activities (3.1) (5.4)
Cash flows from financing activities
Proceeds from borrowings (1.3) 3.6
Purchase of treasury shares by ESOP - (0.2)
Interest paid (1.1) (1.6)
Dividends paid to equity holders of the Company (4.0) (4.0) Dividends paid to minority shareholders (0.1) (0.2) Net cash provided by financing activities (6.5) (2.4)
Effects of currency translation 0.9 (4.6)
Net (decrease)/increase in cash and cash equivalents 7.6 (3.9) Cash and cash equivalents at beginning of financial year (3.9) 0.9 Effects of currency translation on cash an cash
equivalents 0.2 (0.9)
Cash and cash equivalents at end of financial year 3.9 (3.9)
Notes to the Annual Results Statement
for the year ended 31 December 2009
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 singleclass of business; however the Group is also providing sales by end market toassist the readers of this report.
The geographical segmentation is as follows:
£ Millions 2009 2008 Revenue Europe 31.9 32.2 North America 30.8 33.7 Asia 4.6 3.4 Total Revenue 67.3 69.3 Segment result Europe 7.9 6.1 North America 7.1 7.2 Asia (0.2) 0.4
Interest, corporate operating costs and associates (6.4) (3.5)
Segment result 8.4 10.2 Tax (0.8) (1.2) Total Profit 7.6 9.0 Analysis by end market
The revenue by end market was as follows:
Year to 31 December 2009 Year to 31 December 2008 North North
£ Millions Europe America Asia Total Europe America Asia Total
Technology 8.7 8.9 1.2 18.8 8.6 9.1 0.4 18.1 Industrial 15.4 10.2 3.1 28.7 18.6 14.7 2.8 36.1 Healthcare 7.8 11.7 0.3 19.8 5.0 9.9 0.2 15.1 Total 31.9 30.8 4.6 67.3 32.2 33.7 3.4 69.3 3. Income taxes £ Millions 2008 2008 Singapore corporation tax - current year 0.5 0.6 - adjustment in respect of prior year - 0.1 Overseas corporation tax - current year 1.1 0.7 - adjustment in respect of prior year (1.2) (0.4) Total current tax 0.4 1.0 Deferred tax 0.4 0.2 Tax charge for the year 0.8 1.2
The differences between the total tax shown above and the amount calculated by applying
the standard rate of Singapore corporate tax to the profit before tax are asfollows: £ Millions 2009 2008 Profit before tax 8.4 10.2
Tax on profit on ordinary activities at standard Singapore tax
rate of 17% (2008: 18%) 1.4 1.9 Tax incentives (0.3) (0.5)
Higher rates of overseas corporation tax 0.6
0.9 Non-deductible expenditure - 0.1 Exceptional foreign exchange gain not taxable -
(0.9)
Adjustment in respect of prior year (0.9) (0.3) Tax charge for the year 0.8 1.2 4. Dividends
Amounts recognised as distributions to equity holders in the period
2009 2008 Pence Pence per £ per £ share Millions share Millions
Prior year final dividend paid 11.0 * 2.1 11.0 2.1
Interim paid 10.0 ^ 1.9 10.0 * 1.9 Total 21.0 4.0 21.0 4.0
* Dividends in respect of 2008 (21.0p)
^ Dividends in respect of 2009 (22.0p)
The proposed final dividend for 2009 is subject to approval by shareholders atthe Annual General Meeting scheduled for 29 March 2010 and has not beenincluded as a liability in these financial statements. It is proposed that thefinal dividend be paid on 5 April 2010 to members on the register as at 19March 2010. 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:
2009 2008 £ Millions £ Millions Earnings
Earnings for the purposes of basic and diluted earnings per share (profit for the year attributable to equity shareholders of the parent) 7.4 8.8 Amortisation of intangibles associated with acquisitions 0.3 0.2 Non-cash foreign exchange gain - (2.4) Earnings for adjusted earnings per share
7.7 6.6 Number of shares Weighted average number of shares for the purposes of basic earnings per share (thousands) 18,788 18,916
Effect of potentially dilutive share options (thousands)
64 59
Weighted average number of shares for the purposes of
dilutive earnings per share (thousands) 18,852 18,975
Earnings per share from operations
Basic 39.4p 46.5p Diluted 39.3p 46.4p Diluted adjusted 40.8p 34.8p 6. Borrowings, bank loans and overdrafts
The borrowings are repayable as follows:
£ Millions 2009 2008 On demand or within one year 3.9 7.3 In the second year 18.8 3.2 In the third year - 20.7 In the fourth year - - 22.7 31.2 Less: Amounts due for settlement within 12 months (shown under current liabilities) (3.9) (7.3) Total repayable after 12 months 18.8 23.9
The other principal features of the Group's borrowings are as follows:
Bank overdrafts are repayable on demand. The bank overdrafts are secured on theassets of the Group. At 31 December 2009, the Group had an overdraft of £0.1million (2008: £7.3 million). The overdraft interest rate is 2.5% above LIBOR. In January 2009, the Group converted its term debt facility of £16.0 millionand its £5.0 million multicurrency revolving debt facility into a new term loanof US$36.0 million. The term loan is repayable over 3 years with US$6.0 million(£3.8 million) due in 2010 and US$30.0 million (£18.8 million) due in 2011 andis priced at LIBOR plus a fixed margin of 2.0%. 85% of the value of the termloan is subject to an interest rate swap where floating LIBOR rate has beenswapped to a fixed rate of 1.99%. The overall interest cost on 85% of the termloan is therefore fixed at 3.99%.
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 ofrisks which might have a material effect on its financial performance. TheBoard has overall responsibility for the management of risk and sets aside timeat 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 includingUS Dollars, Euro and its reporting currency Pounds Sterling. In particular,North America represents an important geographic market for the Group wherevirtually all the revenues are denominated in US Dollars. The Group alsosources the majority of its product in US Dollars. The Group therefore has anexposure to foreign currency fluctuations. This could lead to material adversemovements in reported earnings. Competition
The power supply market is diverse and competitive in Europe, North America andAsia. The Directors believe that the development of new technologies could giverise to significant new competition to the Group, which may have a materialeffect on its business. At the lower end of the Group's target market thebarriers to entry are low and there is, therefore, a risk that competitioncould quickly increase particularly from emerging low cost manufacturers in
Asia. Risks Specific to the Group Dependence on key personnel
The future success of the Group is substantially dependent on the continuedservices and continuing contributions of its Directors, senior management andother key personnel. The loss of the services of any of their respectiveexecutive officers or other key employees could have a material adverse effecton their businesses.
Loss of key customers/suppliers
The Group is dependent on retaining its key customers and suppliers. Should theGroup lose a number of its key customers or a key supplier this could have amaterial impact on the Group's business financial condition and results ofoperations. However, for the year ended 31 December 2009, no one customeraccounted 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 keyelectronic components. If there is a shortage, non availability or technicalfault with any of the key electronic components this may impair the Group'sability to operate its business efficiently and lead to potential disruption toits operations and revenues.
Fluctuations of revenues, expenses and operating results
The revenues, expenses and operating results of the Group could varysignificantly from period to period as a result of a variety of factors, someof which are outside its control. These factors include general economicconditions, adverse movements in interest rates, conditions specific to themarket, seasonal trends in revenues, capital expenditure and other costs, theintroduction of new products or services by the Group, or by their competitors.In response to a changing competitive environment, the Group may elect fromtime to time to make certain pricing, service, marketing decisions oracquisitions that could have a short term material adverse effect on theGroup's revenues, results of operations and financial condition. Management stretch The management team is likely to be faced with increased challenges associatedwith any sustained macroeconomic recovery. With the financial markets uncertainthe management team must also be able to adapt to the changing conditions andimplement corrective measures as they are needed. It could adversely affect theGroup if the management team is not able successfully to cope with thesechallenges.
Information Technology Systems
The business of the Group relies to a significant extent on IT systems used inthe daily operations of its operating subsidiaries. Any failure or impairmentof those systems or any inability to transfer data onto any new systemsintroduced could cause a loss of business and/or damage to the reputation ofthe Group together with significant remedial costs.
Risks relating to taxation of the Group
The Group is exposed to corporation tax payable in many jurisdictions includingthe USA where the effective rate can be as high as 40.0%, the UK where thecorporation tax rate is currently 28.0% and a number of European jurisdictionswhere the rates vary between 25.5% and 38.7%. In addition, the Group hasmanufacturing activities in China and Hong Kong where the corporation tax ratesare 24% and 17.5% respectively and sales companies in Singapore andSwitzerland 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 futureevents and relies on estimates and assumptions. Although we believe that theestimates and assumptions supporting our positions are reasonable and aresupported by external advice, our ultimate liability in connection with thesematters will depend upon the assessments raised and the result of anynegotiations with the relevant tax authorities. If the actual taxes andpenalties imposed exceed the amounts we have accrued, it could adversely affectour 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 theCompany's statutory accounts for the years ended 31 December 2009 or 2008. Thefinancial information for the year ended 31 December 2008 is derived from theXP Power Limited statutory accounts for the year ended 31 December 2008, whichhave been delivered to the Accounting and Corporate Regulatory Authority inSingapore. The auditors reported on those accounts; their report wasunqualified. The statutory accounts for the year ended 31 December 2009 will befinalised on the basis of the financial information presented by the directorsin this preliminary announcement and will be delivered to the Accounting andCorporate Regulatory Authority in Singapore following the Company's AnnualGeneral Meeting. Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRSs), this announcement does not itself contain sufficient information tocomply with IFRSs. The Company expects to publish full financial statementsthat comply with IFRSs later this month.
This announcement was approved by the directors on 22 February 2010.
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