Xp Power Regulatory News (XPP)

28 July 2014 XP Power Limited ("XP" or "the Group") Interim Results for the six months ended 30 June 2014 XP, a world leading developer and manufacturer of critical power control components for the electronics industry, today announces its interim results for the six-month period ended 30 June 2014. Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Highlights Orders £51.1m £49.9m Revenue £50.2m £49.0m Turnover Gross margin 49.8% 48.6% Operating margin 24.5% 21.6% Profit before tax £12.2m £10.4m Profit after tax £9.7m £8.0m Diluted earnings per share (see Note 9) 50.5p 41.8p Interim dividend per share (see Note 8) 25.0p 23.0p Further market share gains deliver strong underlying improvements in revenuesand earnings Order intake increased by 2% to £51.1 million (+9% in constant currency) Revenue increased by 2% to £50.2 million (+9% in constant currency) Gross margin increased to 49.8% (2013: 48.6%) due to higher factory loading atboth our Chinese and Vietnamese manufacturing facilities Own-design XP product revenues increased by 9%, setting a new record, and nowrepresent 66% of total revenues (2013: 62%) New product introductions and the development of an industry leading in-housemanufacturing capability continue to generate new program wins to drive futuregrowth and market share gains James Peters, Chairman, commented: "While the markets for capital equipment that we serve remain subdued, we haveagain taken market share and delivered strong underlying growth in both ordersand revenues. Stronger margins, due to improved factory utilisation, combinedwith robust underlying revenue growth resulted in a 21% increase in earnings." "We anticipate growing revenues again in 2014, although this underlying growthis expected to be impacted by the translation effects of the US Dollar relativeto Sterling." Enquiries: XPPower Duncan Penny, Chief Executive +44(0)7776 178 018 Jonathan Rhodes, FinanceDirector +44(0)7500 944 614 Citigate DeweRogerson +44(0)20 7638 9571 Kevin Smith/Jos Bieneman Note to editors XP Power is a leading international provider of essential power controlsolutions. Power direct from the electricity grid is unsuitable for theequipment which it supplies. XP Power designs and manufactures powerconverters - components which convert power into the right form for ourindividual customers' needs, allowing their electronic equipment to function.XP Power supplies the healthcare, industrial and technology industries withthis mission critical equipment. Significant, long term investment intoresearch and development means that XP Power's products frequently offersignificantly improved functionality and efficiency. For further information, please visit www.xppower.com 28 July 2014 XP Power Limited ("XP" or "the Group") Interim Results for the six months ended 30 June 2014 INTERIM STATEMENT Overview While the underlying market for capital equipment remained somewhat tepidduring the period, the Group produced another robust performance in the firsthalf. Underlying order and revenue growth was strong and, when combined withhigher margins and cost control, produced diluted earnings per share of 50.5pence, up 21% from the same period a year ago. The execution of our strategycontinues to drive market share gains. Revenues increased by 2% over the prior year. The strength of Sterling versusthe US Dollar, the Group's principal trading currency, had a significanttranslation effect in the period, masking strong underlying revenue growth of9% in constant currency. Our new Vietnam magnetics manufacturing facility has benefited from furthervolume growth and is now contributing to margins. While the translation effectfrom the weaker US Dollar negatively impacts the revenue line it has acorresponding positive impact on cost of sales and the combination of these twofactors acts to increase the gross margin percentage. These factors, togetherwith better factory loading and an improved product mix, led to an increase ingross margin to 49.8% (2013: 48.6%). Strategy The Group has applied a consistent strategy of moving up the value chain,powered by: Development of a strong pipeline of leading-edge products Provision of industry-leading levels of service and support Targeting new key accounts and increasing the penetration of existing keyaccounts An established pipeline of new class-leading "Green" products which operate athigh efficiency The addition of a manufacturing capability, enhancing its value proposition tocustomers by greater control of the manufacturing process An increased proportion of high margin own designed/manufactured productswithin its revenue mix Our value proposition to customers is to reduce their overall costs of design,manufacture and operation. We achieve this by providing excellent salesengineering support and producing new products that consume less power, take upless space and reduce installation times, and which are highly reliable inservice. Trading and Financial Review XP Power supplies power control solutions to original equipment manufacturers("OEMs") who supply the healthcare, industrial and technology markets with highvalue, high reliability products. The increasing importance of energyefficiency for environmental, reliability and economic reasons; the necessityfor ever smaller products; the accelerating rate of technological change; andthe increasing proliferation of electronic equipment, have all set a strongfoundation for medium term growth in demand for XP Power's products. Revenue grew to £50.2 million in the six months to 30 June 2014 compared to £49.0 million in the same period a year ago. This 2% increase has beensignificantly affected by the weakness of the US Dollar compared to Sterling.When adjusting to constant currency the underlying growth is 9% in the firsthalf of the year, which we believe clearly demonstrates the Group's success incontinuing to steadily take market share. Order intake of £51.1 million in the first half showed similar strength growing2% over the same period a year ago. The order intake was also significantlyimpacted by the foreign exchange translation impact discussed above and afteradjusting to constant currency the growth was 9%. Revenues in Europe were £21.7 million (2013: £22.1 million) down 2%; those inNorth America were £24.6 million (2013 £23.7 million), up 4% despite the strongtranslation headwind, and those in Asia were £3.9 million (2013: £3.2 million),up 22% again despite the translation effect. As we sell to Original EquipmentManufacturers who in turn sell to their end customers, it is difficult toaccurately assess whether this geographic split is representative of theultimate end destination of our equipment. However, we believe a significantproportion of the equipment we sell into the industrial sector is likely to endup in emerging markets. Revenues split by sector also reflected the foreign exchange translationheadwinds described above. Revenues from healthcare grew 6% to £15.3 million(2013: £14.5 million) as new program wins from larger accounts where we havegained approved or preferred supplier status began to enter production.Industrial also benefited from new program wins and grew 6% to £24.8 million(2013: £23.5 million). The technology sector proved to be the most challenging;having shown some recovery in the second half of 2013, technology revenuesdeclined by 8% in the period to £10.1 million (2013: £11.0 million). In termsof overall revenue for the first half of 2014, healthcare represented 31%(2013: 30%), industrial 49% (2013: 48%) and technology 20% (2013: 22%). Our customer base continues to be highly diversified with the largest customeraccounting for only 5% of revenue, spread over 100 different programs/partnumbers. Margins We continue to generate industry leading margins. Gross margin in the firsthalf of 2014 increased to 49.8% (2013: 48.6%), driven by improved factoryloading at both our Chinese and Vietnamese manufacturing facilities. We expectto start production of our first power supplies in Vietnam in the second halfof this year which will incur some start-up costs but we do not expect these tobe material. Operating expenses were £12.7 million (2013: £13.3 million). Again there is asignificant translation effect from the weakening of the US Dollar versusSterling which we estimate reduced operating expenses by some £0.3 million. Theremainder of the decrease came from tight cost control and timing of thecapitalisation of product development expenses. Gross product development spendwas £2.6 million (2013: £2.8 million), £1.2 million of which was capitalised(2013: £1.0 million), and £0.7 million amortised (2013: £0.6 million). Despite the sluggish end-market conditions we continue to achieve excellentoperating margins of 24.5% (2013: 21.6%) highlighting the strength of ourbusiness model. We expect further improvement in this metric when marketconditions improve. Financial Position Higher gross and operating margins and modest capital requirements haveresulted in continued strong cash flow and a reduction in net debt. Net debtreduced significantly to £1.5 million at 30 June 2014 compared to £8.5 millionat 30 June 2013. Using the exchange rates prevailing at 30 June 2013, net debtat 30 June 2014 would have been £1.8 million. Product Development New products are fundamental to our revenue growth. The broader our productoffering, the more opportunity we have to increase revenues by expanding ouravailable market. As expected, the significant number of new product familiesintroduced over the last three years is yet to have a material impact on ourrevenues, given the time lag from launch to them entering production. This isdue to the lengthy design-in cycles required by customers to qualify the powerconverter in their equipment and then gain the necessary safety agencyapprovals. We launched 13 new product families in the first half of 2014 (2013: 17).Response from customers to these new launches has been very encouraging. Theproducts launched include some flagship convection cooled products andultra-high efficiency units for high performance applications, as well somevery cost competitive mainstream products suitable for multiple applications.Our design teams are focusing on developing new products that reduce powerwastage, reduce heat, consume less raw material and incorporate low stand-bypower operation. With larger customers continuing to reduce the number of vendors they dealwith, XP Power's broad product offering, excellent global engineering support,in-house manufacturing capability and industry-leading environmentalcredentials leave the Group well-placed to secure further preferred supplieragreements. Manufacturing XP Power's move into manufacturing in 2006 has been instrumental in enabling the Group to win approved and preferred supplier status with new Blue Chip customers, who demand that their suppliers have complete control over their supply chain and product manufacture to ensure the highest levels of quality. In June 2009, production commenced at our first manufacturing facility at Kunshan, close to Shanghai, China. The facility, which is certified under the ISO14001 Environmental Management Standard, delivers manufacturing capabilities which match or exceed the best of our competitors. The number of customer audits from key accounts has steadily increased over recent years and all of these audits have been successful. Our Vietnamese manufacturing facility, located in Ho Chi Minh City, beganproduction of its first magnetic components during March 2012 and is currentlyproducing approximately half of the monthly requirement for magnetic componentsat our Chinese factory. The quality of the Vietnamese output has been verypleasing, surpassing that of our third party suppliers of similar components. Producing our own magnetic components in Vietnam is helping us mitigate thecontinued rise of Chinese labour costs and the appreciation of the ChineseRenminbi. In addition, extending vertical integration to the critical magneticcomponents used in power converters is seen as an additional value propositionby many of our customers, notably in the healthcare and high reliabilityindustrial sectors. Following the successful scale-up of magnetics production in Vietnam, we expectto begin manufacturing power supplies at the factory during the second half,establishing the facility as the second full manufacturing site for the Group. Dividend Since April 2010 the Company has been making quarterly dividend payments. Ourstrong cash flow and confidence in the Group's prospects have enabled us toincrease total dividends for the first half by 9% to 25.0 pence per share(2013: 23.0 pence per share). The first quarter dividend payment of 12 pence per share was made on 10 July2014. The second quarter dividend of 13 pence per share will be paid on 10October 2014 to shareholders on the register at 5 September 2014. Dividend growth over the past ten years has exceeded a compound average growthrate of 15%. Environmental Impact and "Green XP Power" products XP Power has placed improved environmental performance at the heart of itsoperations both in terms of minimising the impact its activities have on theenvironment and, as importantly, in its product development strategy. Thesepractices and initiatives not only resonate with our customers and employees;they also make significant commercial sense as countries legislate to reducepower wastage, improve recyclability of manufactured goods and ban the use ofharmful chemicals. We have developed a class leading portfolio of green products with efficienciesup to 95% and many of these products also have low stand-by power (a feature toreduce the power consumed while the end equipment is not operational but instand-by mode). We now apply our own "Green XP Power" logo to the products wedesignate ultra-high efficiency. During the first half of 2014, 17% of ourrevenues were generated by "Green XP Power" products compared to 11% in 2013,6% in 2012 and 5% in 2011. At present, the uptake of these products bycustomers is primarily driven by their improved reliability and the ability todispense with mechanical fans to dissipate waste heat, rather than the factthat they consume less energy in operation. However, we expect this to changeas lower energy consumption becomes a higher priority to end users of capitalequipment and more legislation is introduced. Board Changes On 30 June 2014 Larry Tracey retired from the board, with James Peters(previously Deputy Chairman) becoming Chairman. Larry made an outstandingcontribution to the Company over a fourteen year period, in both executive andnon-executive capacities overseeing its transition from a distributor of thirdparty products to a designer and manufacturer of its own market-leading rangeof power supplies. He leaves with our thanks and best wishes for a happyretirement. Outlook While global capital goods markets remain subdued overall, our order intakeremains encouraging and we believe that we continue to take market share. Weexpect to grow revenues in 2014, although this underlying growth is expected tobe impacted by the currency translation effects discussed above. Predictingthe likely performance of the US Dollar relative to Sterling in the comingperiod is difficult but the high proportion of our costs that are alsoDollar-denominated will mitigate the impact on earnings. A broad, up to date product portfolio and the development of an industryleading in-house manufacturing capability are at the core of our strategy and,when combined with excellent service and support, are leading to continued newprogram wins which should drive our future growth. This greater penetration ofa Blue Chip customer base and significant design win success bode well for thefuture of XP. XP Power Limited Consolidated Statement of Comprehensive Income For the six months ended 30 June 2014 £ Millions Note Six months Six months ended ended 30 June 30 June 2014 2013 (Unaudited) (Unaudited) Revenue 5 50.2 49.0 Cost of sales 6 (25.2) (25.2) Gross profit 25.0 23.8 Operating expenses 6 (12.7) (13.3) Other operating income 6 - 0.1 Operating profit 12.3 10.6 Finance cost 6 (0.1) (0.2) 5Profit before income tax 12.2 10.4 Income tax expense 7 (2.4) (2.3) Profit after income tax 9.8 8.1 Other comprehensive income: Fair value gains on cash flow 0.3 0.1hedges Exchange differences on translationof foreign operations (0.8) 1.3 Other comprehensive income, net of (0.5) 1.4tax Total comprehensive income 9.3 9.5 Profit attributable to: - owners of the parent 9.7 8.0 - non-controlling interest 0.1 0.1 9.8 8.1 Total comprehensive incomeattributable to: - owners of the parent 9.2 9.4 - non-controlling interest 0.1 0.1 9.3 9.5 Earnings per share attributable to Pence per Pence perowners of the parent Share Share Basic 9 51.1 42.1 Diluted 9 50.5 41.8 XP Power Limited Consolidated Balance Sheet At 30 June 2014 £ Millions Note At 30 At 31 At 30 June 2014 December June 2013 2013 (Unaudited) (Unaudited) Assets Current assets Cash and cash equivalents 11 5.6 5.0 4.2 Trade receivables 14.7 15.4 16.1 Other current assets 1.2 1.4 1.0 Inventories 22.6 20.4 20.5 Total current assets 44.1 42.2 41.8 Non-current assets Property, plant and equipment 12.5 12.7 13.8 Goodwill 30.6 30.6 30.6 Intangible assets 10 9.0 8.5 8.0 ESOP loans to employees 1.0 1.0 1.1 Deferred income tax assets 0.5 0.5 0.3 Total non-current assets 53.6 53.3 53.8 Total assets 97.7 95.5 95.6 Liabilities Current liabilities Trade and other payables 13.4 12.7 12.5 Current income tax liabilities 1.2 1.1 1.4 Derivative financial instruments - 0.1 0.3 Borrowings 12 7.1 8.5 6.8 Total current liabilities 21.7 22.4 21.0 Non-current liabilities Borrowings 12 - - 5.9 Deferred income tax liabilities 2.1 2.0 1.8 Provision for deferred contingent consideration 1.7 1.7 1.5 Total non-current liabilities 3.8 3.7 9.2 Total liabilities 25.5 26.1 30.2 NET ASSETS 72.2 69.4 65.4 Capital and reserves attributable to equity holders of theCompany Share capital 27.2 27.2 27.2 Merger reserve 0.2 0.2 0.2 Treasury shares (1.2) (1.0) (1.0) Hedging reserve - (0.3) (0.1) Translation reserve (8.8) (8.0) (6.4) Retained earnings 54.7 51.1 45.2 72.1 69.2 65.1 Non-controlling interest 0.1 0.2 0.3 Total equity 72.2 69.4 65.4 XP Power Limited Consolidated Statement of Changes in Equity For the six months ended 30 June 2014 (Unaudited) £ Millions Attributable to equity holders of the company Share Treasury Merger Hedging Translation Retained Total Non-controlling Total capital shares reserve reserve reserve earnings interest Equity Balance at 1 January2013 27.2 (1.2) 0.2 (0.2) (7.7) 42.8 61.1 0.2 61.3 Sale of treasuryshares - 0.1 - - - (0.1) - - - Employee share optionplan expenses - 0.1 - - - - 0.1 - 0.1 Dividends paid - - - - - (5.5) (5.5) - (5.5) Total comprehensiveincome for the period - - - 0.1 1.3 8.0 9.4 0.1 9.5 Balance at 30 June2013 27.2 (1.0) 0.2 (0.1) (6.4) 45.2 65.1 0.3 65.4 Balance at 1 January2014 27.2 (1.0) 0.2 (0.3) (8.0) 51.1 69.2 0.2 69.4 Saleof treasuryshares - 0.1 - - - - 0.1 - 0.1 Purchase of treasuryshares - (0.4) - - - - (0.4) - (0.4) Employee share optionplan expenses - 0.1 - - - - 0.1 - 0.1 Dividends paid - - - - - (6.1) (6.1) (0.2) (6.3) Total comprehensiveincome for the period - - - 0.3 (0.8) 9.7 9.2 0.1 9.3 Balance at 30 June2014 27.2 (1.2) 0.2 - (8.8) 54.7 72.1 0.1 72.2 XP Power Limited Consolidated Statement of Cash Flows For the six months ended 30 June 2014 £ Millions Note Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Cash flows from operating activities Total profit 9.8 8.1 Adjustments for Income tax expense 2.4 2.3 Amortisation and depreciation 1.4 1.3 Finance cost 0.1 0.2 Loss on fair valuation of derivative financial instruments ESOP expenses 0.1 0.2 0.1 0.1 Unrealised currency translation (gain)/losses (0.6) 0.6 Change in the working capital Inventories (2.2) (0.7) Trade and other receivables 0.9 (1.7) Trade and other payables 0.7 1.4 Income tax paid (2.3) (2.5) Net cash provided by operating activities 11 10.4 9.3 Cash flows from investing activities Purchases and construction of property, plant and equipment (0.9) (0.5) Research and development expenditure capitalised 6 (1.2) (1.0) ESOP loan repaid 0.1 0.1 Net cash used in investing activities (2.0) (1.4) Cash flows from financing activities Repayment of borrowings (2.0) (1.2) Sale of treasury shares by ESOP 0.1 0.1 Interest paid (0.1) (0.2) Dividends paid to equity holders of the Company (6.1) (5.5) Dividends paid to non-controlling interest (0.2) - Net cash used in financing activities (8.3) (6.8) Net increase in cash and cash equivalents 0.1 1.1 Cash and cash equivalents at start of period 3.8 0.5 Effects of currency translation on cash and cash equivalents (0.1) (0.2) Cash and cash equivalents at the end of the period 11 3.8 1.4 Reconciliation of changes in cash and cash equivalents to movements in net debt Net increase in cash and cash equivalents 0.1 1.1 Repayment of borrowings 2.0 1.2 Effects on currency translation (0.1) (0.2) Movement in net debt 2.0 2.1 Net debt at start of period (3.5) (10.6) Net debt at end of period (1.5) (8.5) XP Power Limited Notes to the Interim Results for the six months ended 30 June 2014 General information XP Power Limited (the "Company") is listed on the London Stock Exchange and incorporated and domiciled in Singapore. The address of its registered office is 401 Commonwealth Drive, Lobby B #02-02, Haw Par Technocentre, Singapore 149598. The nature of the Group's operations and its principal activities is to provide power supply solutions to the electronics industry. These condensed consolidated interim financial statements are presented in Pounds Sterling (GBP). Basis of preparation The condensed consolidated interim financial statements for the period ended 30 June 2014 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 2013 which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. Going Concern The directors, after making enquiries, are of the view, as at the time ofapproving the financial statements, that there is a reasonable expectation thatthe Group will have adequate resources to continue operating for theforeseeable future and therefore the going concern basis has been adopted inpreparing these financial statements. Accounting policies The condensed consolidated interim financial statements have been prepared under the historical cost convention except for the fair value of derivatives in accordance with IFRS 9, "Financial Instruments". The same accounting policies, presentation and methods of computation are followed in these condensed consolidated interim financial statements as were applied in the presentation of the Group's financial statements for the year ended 31 December 2013. Segmented analysis The Group operates substantially in one class of business, the provision of power control solutions to the electronics industry. Analysis of total Group operating profit, total assets, revenue and total group profit before taxation by geographical region is set out below. £ Millions Six months ended Six months ended 30 June 2014 (Unaudited) 30 June 2013 (Unaudited) Revenue Asia 3.9 3.2 Europe 21.7 22.1 North America 24.6 23.7 Total revenue 50.2 49.0 Segmented analysis (continued) £ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Total assets Asia 28.8 30.1 Europe 24.7 26.0 North America 43.7 39.2 Segment assets 97.2 95.3 Unallocated deferred 0.5 0.3tax Total assets 97.7 95.6 Reconciliation of segment results to profit after tax: £ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Asia 1.1 0.1 Europe 4.3 3.8 North America 6.5 6.0 Segment result 11.9 9.9 Corporate recovery from 1.0 1.2operating segment Research and development cost (0.6) (0.5) Finance income and cost (0.1) (0.2) Profit before income tax 12.2 10.4 Tax (2.4) (2.3) Profit after income tax 9.8 8.1 The Group's three business segments operate in the following countries: £ Millions Six months ended Six months ended 30 June 2014 (Unaudited) 30 June 2013 (Unaudited) Revenue United States 24.6 23.7 United Kingdom 11.6 11.9 Singapore 3.9 3.2 Germany 4.4 4.6 Switzerland 1.7 1.9 Other countries 4.0 3.7 Total revenue 50.2 49.0 Expenses by nature £ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Profit for the period is after charging/(crediting): Amortisation of intangible assets 0.7 0.6 Depreciation of property, plant and equipment 0.7 0.7 Foreign exchange loss 0.2 0.2 Foreign exchange (gains) on forward contracts (0.1) (0.2) Purchase of inventories 19.8 23.3 Changes in inventories 2.2 0.7 Fees paid to auditors: - Audit 0.2 0.2 - Other services - tax 0.1 0.1 All other charges 14.2 13.0 Total 38.0 38.6 Included in the above is net research and development expenditure as follows: £ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Gross research and development expenditure 2.6 2.8 Development expenditure capitalised (1.2) (1.0) Amortisation of development expenditure 0.7 0.6capitalised Net research and development expenditure 2.1 2.4 Taxation Income tax expense is recognised based on management's best estimate of the weighted average annual income tax expected for the full financial year. The estimated effective annual tax rate used for 2014 is 20% (2013: 22%). £ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Singapore 0.7 0.6 Other overseas taxation 1.7 1.7 Total taxation 2.4 2.3 Dividends Amounts recognised as distributions to equity holders of the Company in the period: Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Pence per share £ Millions Pence per share £ Millions Prior year 3rd quarter dividend 13.0 2.5 12.0 2.3paid Prior year final dividend paid 19.0 3.6 17.0 3.2 Total 32.0 6.1 29.0 5.5 The dividends paid recognised in the interim financial statements relate to the third quarter and final dividends for 2013. The first quarterly dividend of 12 pence per share was paid on 10 July 2014. A second quarterly dividend of 13 pence per share (2013: 12 pence) will be paid on 10 October 2014 to shareholders on the register at 5 September 2014. Earnings per share Earnings per share attributable to equity holders of the company arise from continuing operations as follows: £ Millions Six months Six months ended ended 30 June 30 June 2014 2013 (Unaudited) (Unaudited) Earnings Earnings for the purposes of basic and diluted earningsper share (profit for the period attributable to equityshareholders of the company) 9.7 8.0 Earnings for adjusted earnings per share 9.7 8.0 Number of shares '000 '000 Weighted average number of shares for the purposes of basicearnings per share (thousands) 19,000 18,993 Effect of potentially dilutive share options (thousands) 209 136 Weighted average number of shares for the purposes of dilutiveearnings per share (thousands) 19,209 19,129 Earnings per share from operations Basic 51.1p 42.1p Diluted 50.5p 41.8p Diluted adjusted 50.5p 41.8p Intangible assets Intangible assets comprises development expenditure capitalised when it meets the criteria laid out in IAS 38, "Intangible Assets", trademarks and non-contractual customer relationships. Cash and cash equivalents For the purpose of presenting the consolidated cash flow statement, theconsolidated cash and cash equivalents comprise the following: £ Millions Six months ended Six months ended 30 June 2014 30 June 2013 (Unaudited) (Unaudited) Cash and bank balances 5.6 4.2 Less: Bank overdrafts (1.8) (2.8) Cash and cash equivalents per consolidated cash flowstatement 3.8 1.4 Reconciliation to free cash flow: Net cash inflow from operating activities 10.4 9.3 Development expenses capitalised (1.2) (1.0) Finance cost (0.1) (0.2) Free cash flow 9.1 8.1 Borrowings, bank loans and overdraft £ Millions 30 June 2014 31 December 2013 30 June 2013 (Unaudited) (Unaudited) Non-Current - - 5.9 Current 7.1 8.5 6.8 Total 7.1 8.5 12.7 Currency Impact We report in Pounds Sterling (GBP) but have significant revenues and costs aswell as assets and liabilities that are denominated in United States Dollars(USD). The table below sets out the prevailing exchange rates in the periodsreported. First half First half % 30 June 31 December 30 June 2014 2013 2014 2013 2013 Change Average Average Period end Period end Period end USD/ 1.67 1.54 8.4% 1.69 1.64 1.52GBP EUR/ 1.21 1.18 2.5% 1.25 1.19 1.17GBP Approximately 75% of the Group's revenues are invoiced in USD so the change inthe USD to GBP exchange rate has a significant effect on reported revenue inGBP. However, as the majority of our cost of goods sold and operating expensesare also denominated in USD the change in profit before tax with the USD to GBPexchange rate is relatively minor. The impact of changes in the key exchangerates from the first half of 2013 to the first half of 2014 are summarised asfollows: £ Millions USD EUR Impact on revenues (2.8) (0.1) Impact on profit before tax (0.7) - Impact on net debt 0.5 - Risks and uncertainties Like many other international businesses the Group is exposed to a number ofrisks and uncertainties which might have a material effect on its financialperformance. These include: Fluctuations in foreign currency The Group has an exposure to foreign currency fluctuations. This could lead tomaterial adverse movements in reported earnings. 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. Loss of key customers/suppliers The Group is dependent on retaining its key customers and suppliers. However,for the six months ended 30 June 2014, no one customer accounted for more than5% of revenue. Shortage, non-availability or technical fault with regard to key electroniccomponents 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. Information Technology Systems The business of the Group relies to a significant extent on informationtechnology systems used in the daily operations of its operating subsidiaries.Any failure or impairment of those systems or any inability to transfer dataonto any new systems introduced could cause a loss of business and/or damage tothe 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. Theeffective tax rate of the Group is affected by where its profits fallgeographically. The Group effective tax rate could therefore fluctuate overtime. 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. Directors' responsibility statement The interim results were approved by the board of directors on 28 July 2014. The directors confirm that to the best of their knowledge that: This unaudited interim results has been prepared in accordance with IAS 34 "Interim Reporting" as adopted by the European Union; andThe interim results includes 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 2013 Annual Report. On 30 June 2014 Larry Tracey retired from the board, with James Peters (previously Deputy Chairman) becoming Chairman.