Last checked at 2 Aug 2010 07:00
2 August 2010XP Power Limited ("XP" or "the Group")
Interim Results for the six months ended 30 June 2010
XP, one of the world's leading developers and manufacturers of critical powercontrol components for the electronics industry, today announces its interimresults for the six-month period ended 30 June 2010. Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) Highlights Revenue £40.7m £33.1m + 23% Turnover Gross profit £19.0m £14.9m + 27% Gross margin 46.7% 45.0% +1.7% points Operating margin 18.9% 13.0% + 5.9% points
Adjusted (*) profit before tax £7.3m £3.8m
+ 92%
Adjusted (*) profit after tax £5.9m £3.5m
+ 69% Diluted earnings per share 31.1p 18.6p + 67%adjusted (*) (see Note 11)
Interim dividend per share (see 13.0p 10.0p +
30%
Note 10)
(*) Adjusted for amortisation of intangibles associated with acquisitions of £ 0.1 million (2009: £0.2 million)
* Continued evolution of the Group to an own brand/own manufactured business
model delivers a very strong result for the period which sets new records
for revenue, gross margins and earnings per share. * Further new product introductions and the development of an industry leading in-house manufacturing capability have generated multiple new
program wins which are driving growth as market share gains gather pace.
* Broad recovery now evident in core Technology, Medical and Industrial end-user markets. * Increased gross margins of 46.7% (2009: 45.0%) driven by continued
expansion of in-house developed, XP brand products, which now represent 90%
of revenues (2009: 83%). * Production volumes at Chinese facility now double those of 2009 and approaching 50% of capacity, triggering plans for second facility in Vietnam, on land acquired in 2008. * Net debt reduced to £19 million at 30 June 2010 (2009: £25 million).
* Current trading remains robust - new program wins underpin prospects in the
second half and beyond.
Larry Tracey, Executive Chairman, commented:
"Our long term strategy of investing in the development and manufacture of ourown products has enabled XP to produce excellent financial results in the firsthalf of 2010, which set new records in terms of revenue, gross margins andearnings per share. We entered the second half with record order books and newbusiness secured to date should produce improved revenue in the second half ascustomer orders enter production, underpinning our confidence in prospects forthe full year. We are working hard to ensure that in 2011 and beyond wecontinue to improve value to our customers and therefore our shareholders".
Enquiries:
XP Power
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
Note to editors
XP designs and manufactures power controllers, the essential hardware component in every piece of electrical equipment that converts the power from the electricity grid into the right form for the 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
XP Power Limited ("XP" or "the Group")
Interim Results for the six months ended 30 June 2010
CHAIRMAN'S STATEMENT OverviewThe trading environment in the first half has been buoyant. Our long termstrategy of investing in the development of our own products has enabled XP toweather the economic storm of the last two years and produce excellentfinancial results in the first half of 2010, which set new records in terms ofrevenue, gross margins and earnings per share.
Further, significant new product introductions and the development of an industry leading in-house manufacturing capability are at the core of our strategy and are leading to multiple new program wins which are driving our growth as we take market share.
This strong performance has enabled the Group to reduce net debt further to £19million at 30 June 2010 compared to £25 million at 30 June 2009. Using theexchange rates prevailing at 30 June 2009, net debt at 30 June 2010 would havebeen £17 million.MarketsXP Power supplies power control solutions to original equipment manufacturers("OEMs") who themselves supply the healthcare, technology and industrialmarkets with high value products. The increasing importance of energyefficiency, for both environmental and economic reasons, the necessity for eversmaller products, the accelerating rate of technological change and theincreasing proliferation of electronic equipment, all underpin the strength ofmedium term demand for XP Power's products.Revenue growth is being driven from the long term investment we have made inbuilding a broad portfolio of leading edge products. Revenues for the periodwere up 23% (28% in constant currency) to £40.7 million compared with £33.1million in the same period a year ago. Improving demand for the capitalequipment that our products power has been reasonably broad based as theeconomic recovery has taken hold. In North America this has been mostpronounced in Technology. In Europe all three sectors have grown withIndustrial leading the field. In Asia all three sectors have grown, led by theTechnology segment.For the six months ended 30 June 2010, 46% of our revenues were generated fromIndustrial (2009: 49%), 26% from Healthcare (2009: 29%) and 28% from Technology(2009: 22%).
The Group's customer base remains highly diversified. The largest customer was 4% of our revenue spread over 68 different programs/part numbers.
Margins
Our value proposition to our customers is to reduce their costs of manufactureand operation. We achieve this by producing new products that consume lesspower, take up less space, reduce installation times and which are highlyreliable in service. As the proportion of revenue generated from our owndesigned and manufactured product has increased, so too have our gross margins.The 46.7% gross margin achieved in the first half of 2010 is a record (2009:45.0%). As less than half our revenue at present is both own design andmanufactured there remains plenty of scope for further improvements.
Product Development
New products are fundamental to driving our revenue growth. The markets we serve and the customer requirements we identify are numerous and diverse. The broader our product offering the more opportunity we have to increase our revenues by expanding our available market.
XP Power helps its customers reduce their own production costs and lower theoperating costs of their equipment when in service. Materials, space and energyconsumption savings are achieved by applying the power control intellect of amulti-disciplined team of some 200 engineers. This is the essence of the valuewe add for our customers.We launched 14 new product families in the first half of 2010. In response tocustomer requirements for improved efficiency and environmental performance,our design teams are focusing on developing new products that reduce powerwastage, reduce heat, and consume less raw material. Product developmentspending increased 33% from £1.2 million in the first half of 2009 to £1.6million in the first half of 2010.Larger customers are also keen to reduce the number of vendors they deal withand XP Power's broad product offering, excellent global engineering support andin-house manufacturing capability make us an ideal candidate as a preferredsupplier.
Supply Chain Dynamics
The decision of some component manufacturers to significantly reduce theircapacity during the recession led to the supply chain for many electroniccomponents becoming very thin as the recovery commenced, with lead times formany components - particularly active components and certain capacitors -increasing dramatically and shortages becoming common. We anticipated thisdynamic which has occurred during other recoveries and acted early tosignificantly increase our safety inventories of critical components.Inventories increased from £10.7 million at the 2009 year end to £15.2 millionat 30 June 2010, with £2.6 million of this increase due to higher safetyinventories of critical components.
Manufacturing
XP Power's products frequently power critical applications and our keycustomers demand the ultimate in quality control to ensure reliability for thelife of their equipment. In 2005 the Group recognised an opportunity to takedirect control of its manufacturing activities to strictly manage theproduction processes and to reduce its product costs. The evolution of theGroup to this own brand/own manufactured business model is delivering bothhigher margins and more rapid customer response times.In June 2009 production commenced at a new manufacturing facility constructedon our existing site at Kunshan, close to Shanghai, China. This new facilityhas enabled us to win more of the available business from our existing BlueChip customer base and to attract new larger customers where we have yet togain preferred supplier status. These customers demand that their suppliershave complete control over their supply chain and product manufacture to ensurethe highest levels of quality. The facility, which is certified under theISO14001 Environmental Management Standard, delivers manufacturing capabilitieswhich match the best of our competitors.The facility underwent 7 customer inspections during the period and all weresuccessful, paving the way for XP to secure approved and/or preferred supplierstatus with further new key customers. The launch of the in-house manufacturingfacility was a major milestone in the Group's development and it is playing acrucial role in driving revenue growth.The Kunshan factory is now approaching 50% capacity utilisation due to theincreased demand for our latest products which are own manufactured. Outputfrom the factory is now more than double the volumes experienced in 2009. Asanticipated, we are therefore progressing plans to gain planning consent for anadditional factory in Vietnam to help meet future demand. In 2008 the Grouppurchased land on the outskirts of Ho Chi Minh City, with sufficient space fortwo new factories which would more than triple our existing productioncapacity. We expect to break ground on the first of these new factories on thissite later this year. The Vietnam site has sufficient space for us to build twofactories equivalent to the size of our existing China factory in a phasedapproach as demand dictates. Adding manufacturing capacity in Vietnam will alsohelp mitigate the rapid salary inflation in evidence in China as well as theinevitable appreciation of the Chinese currency over time, although at presentthese are a comparatively small constituent of our cost structure. Weanticipate that the more labour intensive manufacturing operations will betransferred to the new facility in Vietnam within two years.
Capital requirements to expand our manufacturing capacity are very modest compared to the returns. We expect the site preparation and first building cost to be approximately $6.0 million and the initial equipment set to be approximately $2.5 million.
Dividend
In April this year we announced that the Company's dividend payment schedulewould change from a half yearly to a quarterly basis, to increase theattractiveness of the Group's shares to certain investors and to smooth cashflows. Our strong financial performance and confidence in the Group's prospectshave enabled us to increase dividends for the first half by 30% to 13.0 penceper share (2009: 10.0 pence per share).The first quarterly payment of 6.0 pence per share was made on 6 July 2010. Asecond quarterly dividend of 7 pence per share will be paid 12 October 2010 toshareholders on the register at 10 September 2010. These first two quarterlypayments total 13.0 pence per share versus the interim dividend of 10.0 penceper share paid for the equivalent period in 2009.
A third quarterly dividend will be paid in January 2011 and a final dividend in April 2011.
Environmental ImpactXP Power has placed improved environmental performance at the heart of itsoperations both in terms of minimising the impact its activities have on theenvironment and in its product development strategy. These practices andinitiatives not only resonate with our customers and employees; they also makeenormous commercial sense as countries legislate to reduce power wastage,improve recyclability of manufactured goods and ban the use of harmfulchemicals.I am therefore pleased to announce that XP Power has been accepted as anApplicant Member of the Electronic Industry Citizenship Coalition ("EICC"). TheEICC is a collaboration of leading electronics companies that promotes anindustry code of conduct for global supply chains to improve working andenvironmental conditions. XP's successful membership application reflects themajor progress achieved by the Group in enhancing the energy efficiency of itspower converters in recent years and its ongoing commitment to improving itsenvironmental performance.In summary, XP Power is on a mission to develop smaller products that wasteless energy, consume less physical material and avoid hazardous substances. Iam confident that these initiatives will not only benefit the environment butwill help us grow our business and increase the value of our Company.
Corporate Governance
The Board has recently reviewed the areas where the Company is not fullycompliant with the Combined Code on Corporate Governance. In accordance withthe Listing Rules these areas are set out in the Corporate Governance Reportcontained with the Company's 2009 Annual Report. Action is being taken suchthat XP Power expects to be fully compliant with the Combined Code before theyear end.Outlook
Trading since the period end has continued to be robust, with sustained momentum in customer orders and production volumes. We entered the second half with record order books and new business secured to date should produce improved revenue in the second half as customer orders enter production, underpinning our confidence in prospects for the full year.
Our challenge is to ensure that the exceptional results achieved in 2010 areprogressively improved over the next five years to the benefit of customers,employees and shareholders. I believe the Group is well placed to execute theseobjectives.Larry TraceyExecutive Chairman2 August 2010XP Power Limited
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2010
£ Millions Note Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) Revenue 7 40.7 33.1 Cost of sales 8 (21.7) (18.2) Gross profit 19.0 14.9 Operating expenses 8 (11.5) (10.6) Other operating income 8 0.2 - Operating profit 7.7 4.3 Finance cost 8 (0.5) (0.7) Profit before taxation 7 7.2 3.6 Tax on profit 9 (1.3) (0.3) Net profit 5.9 3.3 Other comprehensive income: Fair value gains/(losses) on cash 0.8 (1.3) flow hedges
Exchange differences on translation (0.7) 1.3
of foreign operations
Other comprehensive income, net of 0.1 -
tax Total comprehensive income 6.0 3.3 Profit attributable to:
- equity holders of the company 5.8 3.3
- non-controlling interest 0.1 - 5.9 3.3 Total comprehensive income attributable to:
- equity holders of the company 5.9 3.3
- non-controlling interest 0.1 - 6.0 3.3 Earnings per share for profit from Pence per Pence per continuing operations attributable to equity holders of the Company Share Share
Basic 11 30.8 17.6 Diluted 11 30.6 17.5 XP Power LimitedConsolidated Balance SheetAt 30 June 2010£ Millions Note At 30 At 31 At 30 June 2010 December 2009 June 2009 (Unaudited) (Unaudited) Assets Current assets Cash and cash equivalents 7 2.9 4.0 1.8
Derivative financial instruments 7 1.0 -
- Trade and other receivables 7 13.3 11.0 10.0 Other current assets 7 1.4 1.2 1.2 Inventories 6, 7 15.2 10.7 13.6 Total current assets 33.8 26.9 26.6 Non-current assets Interests in associates 0.1 0.1 0.1
Property, plant and equipment 7.9 7.1
6.8 Goodwill 7 31.0 31.0 30.0 Other intangible assets 12 4.9 4.5 4.0 ESOP loans to employees 2.6 2.6 2.7 Deferred income tax assets 7 0.4 0.3 0.1 Total non-current assets 46.9 45.6 43.7 Total assets 80.7 72.5 70.3 Liabilities Current liabilities Trade and other payables 7 14.0 9.1 6.6
Current income tax liabilities 7 2.9 2.5
2.8
Derivative financial instruments 7 0.3 0.3
0.3 Bank loans and overdraft 14 4.0 3.9 6.5 Total current liabilities 21.2 15.8 16.2 Non-current liabilities Borrowings 14 18.1 18.8 20.3
Deferred income tax liabilities 7 1.7 1.8
1.6
Provision for other liabilities 7 3.7 3.6
2.0and charges Total non-current liabilities 23.5 24.2 23.9 Total liabilities 44.7 40.0 40.1 NET ASSETS 36.0 32.5 30.2 Capital and reserves
attributable to equity holders
of the Company Share capital 27.2 27.2 27.2 Merger reserve 0.2 0.2 0.2 Treasury shares (0.9) (0.9) (0.8) Hedging reserve 0.6 (0.2) (0.3) Translation reserve (8.1) (7.4) (7.2) Retained earnings 16.8 13.3 10.9 35.8 32.2 30.0 Non-controlling interest 0.2 0.3 0.2 Total equity 36.0 32.5 30.2 XP Power Limited
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2010 (Unaudited)
Share Company Merger Hedging Translation Retained Total
Non-controlling Total
capital treasury reserve reserve reserve earnings
attributable interest Equity
shares to equity holders of the parents Balance at 1 27.2 (0.8) 0.2 1.0 (8.5) 9.7 28.8 0.2 29.0January 2009 Dividends - - - - - (2.1) (2.1) - (2.1)paid Total - - - (1.3) 1.3 3.3 3.3 - 3.3comprehensive income for the period Balance at 30 27.2 (0.8) 0.2 (0.3) (7.2) 10.9 30.0 0.2 30.2June 2009 Balance at 1 27.2 (0.9) 0.2 (0.2) (7.4) 13.3 32.2 0.3 32.5January 2010 Dividends - - - - - (2.3) (2.3) (0.2) (2.5)paid Total - - - 0.8 (0.7) 5.8 5.9 0.1 6.0comprehensive income for the period Balance at 30 27.2 (0.9) 0.2 0.6 (8.1) 16.8 35.8 0.2 36.0June 2010 XP Power Limited
Consolidated Cash Flow Statement
For the six months ended 30 June 2010
£ Millions Note Six months Six months ended ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited)
Cash flows from operating activities Total profit 5.9 3.3 Adjustments for * Income tax expense 1.3 0.3 * Amortisation and depreciation 1.1 0.9 * Finance cost 0.5 0.7 * Gain on fair valuation of derivative (0.1) (0.1) financial instruments * Research and development expense 1.2 1.0 Change in the working capital * Inventories (4.5) 3.9 * Trade and other receivables (2.5) 2.7 * Trade and other payables 4.8 (5.6) * Income tax paid (1.3) (0.3)
Net cash provided by operating 13 6.4 6.8
activities
Cash flows from investing activities Purchases and construction of property, (1.0) (0.8)
plant and equipment
Research and development expenditure 8 (2.1) (1.8) Net cash used in investing activities (3.1) (2.6) Cash flows from financing activities
Repayment of borrowings (0.4) (1.8) Interest paid (0.4) (0.7)
Dividends paid to equity holders of the (2.3) (2.1)
Company
Dividends paid to non-controlling (0.2) -
interest
Net cash used in financing activities (3.3) (4.6) Effects of currency translation (1.1) 1.2 Net increase/(decrease) in cash and cash (1.1) 0.8
equivalents
Cash and cash equivalents at start of 3.9 (3.9)
period
Effects of currency translation on cash 0.1 0.2
and cash equivalents
Cash and cash equivalents at the end of 13 2.9 (2.9)
the period XP Power Limited
Notes to the Interim Results for the six months ended 30 June 2010
1. 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).
2. Basis of preparation
The condensed consolidated interim financial statements for the period ended 30June 2010 has been prepared in accordance with the Listing Rules of theFinancial Services Authority and with IAS 34, Interim Financial Reporting asadopted 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 2009 which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
3. 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.
4. 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 IAS 39, "Financial Instruments: Recognition and Measurement".
The same accounting policies, presentation and methods of computation arefollowed in these condensed consolidated interim financial statements as wereapplied in the presentation of the Group's financial statements for the yearended 31 December 2009.
On 1 January 2010, the Group adopted the following standards that are mandatory for application from that date:
IAS 1 (Amendment) Presentation of Financial Statements
IFRS 2 (Amendment) Group cash-settled and share-based payment transactions
IFRS 3 (revised) Business combinations
IFRS 5 (Amendment) Measurement of non-current assets (or disposal groups) classified as held-for-sale
IFRS 9 Financial Instruments
IFRIC 17 Distribution of non-cash assets to owners
IAS 27 (revised) Consolidated and Separate Financial Statements
IAS 38 (Amendment) Intangible Assets
The adoption of the above standards did not result in any substantial changesto the Group's accounting policies or any significant impact on these financialstatements.
5. Property, plant and equipment
Items of property, plant and equipment, including leasehold land and buildings,are stated at cost less accumulated depreciation and any recognised impairmentlosses.
The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
Freehold land and property under development are not depreciated. Depreciationon other items of property, plant and equipment is charged so as to write offthe cost or valuation of the assets over their estimated useful lives, usingthe straight line method, on the following bases:
Plant and equipment 10 - 33%
Motor vehicles 20 - 25%
Building improvements 10% or over the life of the lease if shorter
Buildings 2 - 5%
Leasehold land 2% or over the life of the lease if shorter
The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognised in the income statement when the changes arise.
6. Inventories
Inventories are stated at the lower of cost and net realisable value. The costof finished goods and work-in-progress comprises raw materials, direct labour,other direct costs and related production overheads (based on normal operatingcapacity) but excludes borrowing costs.
Cost is calculated using weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
7. Segmented analysis
The Group operates substantially in one class of business, the provision ofpower control solutions to the electronics industry. Analysis of total Groupoperating profit, net assets, revenue and total group profit before taxation bygeographical region is set out below.£ Millions Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) Revenue Europe 19.2 16.1 USA 19.6 15.8 Asia 1.9 1.2 Total revenue 40.7 33.1
7. Segmented analysis (continued)
Reconciliation of segment results to profit before tax:
£ Millions Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) Europe 3.1 2.1 USA 3.6 2.0 Asia - (0.3) Segment result 6.7 3.8
Corporate recovery from operating 2.6 1.7
segment Research and development cost (1.6) (1.2) Finance income and cost (0.5) (0.7) Profit before taxation 7.2 3.6 Tax (1.3) (0.3) Total profit 5.9 3.3
The Group's three business segments operate in the following countries:
£ Millions Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) United States 19.6 15.8 United Kingdom 10.5 8.4 Singapore 1.9 1.2 Germany 3.2 2.4 Switzerland 1.8 1.8 Other countries 3.7 3.5 Total revenue 40.7 33.1 £ Millions At June 2010 (Unaudited) At June 2009 (Unaudited) Europe USA Asia Total Europe USA Asia Total Other information Capital additions 0.2 - 0.8 1.0 - - 0.8 0.8 Depreciation 0.2 0.1 0.3 0.6 0.2 0.1 0.2 0.5 Intangible additions - 0.6 0.3 0.9 - 0.8 - 0.8 Amortisation 0.1 0.4 - 0.5 0.2 0.2 - 0.4 Balance Sheet Goodwill 10.9 19.4 0.7 31.0 9.3 19.6 1.1 30.0 Other non-current 4.6 5.2 5.7 15.5 5.0 4.2 4.4 13.6assets Inventories 1.5 5.0 8.7 15.2 1.6 6.0 6.0 13.6 Trade receivables 6.2 6.0 1.1 13.3 5.0 4.4 0.6 10.0 Derivative financial - - 1.0 1.0 - - - -instruments Other current assets 0.3 0.3 0.8 1.4 0.5 0.3 0.4 1.2 Cash and cash 0.9 2.0 - 2.9 1.2 0.2 0.4 1.8equivalents Segment assets 24.4 37.9 18.0 80.3 22.6 34.7 12.9 70.2 Unallocated deferred - - - 0.4 - - - 0.1tax assets Consolidated total - - - 80.7 - - - 70.3assets
7. Segmented analysis (continued)
£ Millions At June 2010 (Unaudited) At June 2009 (Unaudited) Europe USA Asia Total Europe USA Asia Total Trade and other (2.5) (1.7) (9.8) (14.0) (1.7) (1.4) (3.5) (6.6)payables Derivative financial - (0.3) - (0.3) - (0.2) (0.1) (0.3)instruments Provision for other (3.7) - - (3.7) (2.0) - - (2.0)liabilities and charges Segment liabilities (6.2) (2.0) (9.8) (18.0) (3.7) (1.6) (3.6) (8.9) Unallocated - - - (22.1) - - - (26.8)corporate liabilities Unallocated deferred - - - (4.6) - - - (4.4)and current tax liabilities Consolidated total - - - (44.7) - - - (40.1)liabilities
Operating net assets are defined as net assets adjusted for net borrowings.
30 June 2010 30 June 2009 (Unaudited) (Unaudited) Net assets 36.0 30.2 Net debts 19.2 25.0 Total operating net assets 55.2 55.2 8. Expenses by nature £ Millions Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited)
Profit for the period is after charging/ (crediting): Gross research and development expense 2.1 1.8 Development expense capitalised (0.9) (0.8) Amortisation of development expense 0.4 0.2 capitalised Net research and development expense 1.6 1.2 Amortisation of other intangible assets 0.1 0.2 Depreciation of property, plant and 0.6 0.5
equipment Foreign exchange loss - 0.2
Foreign exchange (gains) on forward (0.1) (0.1) contracts Cost of inventories recognised as expense 21.7 18.2
Charge for doubtful debts - (0.1) Fees paid to auditors: - Audit 0.2 0.2 All other charges 9.4 9.2 Total 33.5 29.5 9. Taxation
Income tax expense is recognised based on management's best estimate of theweighted average annual income tax expected for the full financial year. Inarriving at the tax expense estimate, consideration for certain taxuncertainties were accounted for. The estimated effective annual tax rate usedfor 2010 is 17% (2009: 9%). The 2009 rate is reduced by certain factors some ofwhich will not recur in the future.£ Millions Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) Singapore 0.4 0.2 Other overseas taxation 0.9 0.1 Total taxation 1.3 0.3 10. Dividends
Amounts recognised as distributions to equity holders in the period:
Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) Pence per £ Millions Pence £ Millions share per share Prior year final dividend 12.0 2.3 11.0 2.1paid The dividend paid recognised in the interim financial statements relates to the2009 year-end dividend. Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) Pence per £ Millions Pence £ Millions share per share Proposed interim dividend 13.0 2.4 10.0 1.9
On 12 April 2010 we announced that the Company's dividend payment schedulewould change from a half yearly to a quarterly basis, to increase theattractiveness of the Group's shares to certain investors and to smooth cashflows. The first quarterly payment of 6 pence per share was made on 6 July 2010to shareholders on the register at 11 June 2010.
A second quarterly dividend of 7 pence per share will be paid 12 October 2010 to shareholders on the register at 10 September 2010.
A third quarterly dividend will be paid in January 2011 and a final dividend in April 2011.
11. 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 2010 30 June 2009 (Unaudited) (Unaudited) Earnings
Earnings for the purposes of basic and 5.8 3.3 diluted earnings per share (profit for the period attributable to equity shareholders of the company) Amortisation of intangibles associated with 0.1 0.2 acquisitions Earnings for adjusted earnings per share 5.9 3.5 Number of shares '000 `000 Weighted average number of shares for the 18,803 18,795 purposes of basic earnings per share (thousands) Effect of potentially dilutive share options 150 22 (thousands) Weighted average number of shares for the 18,953 18,817 purposes of dilutive earnings per share (thousands) Earnings per share from operations
Basic 30.8p 17.6p Diluted 30.6p 17.5p Diluted adjusted 31.1p 18.6p 12. Other intangible assets
Other intangible assets comprises development expenditure capitalised when it meets the criteria laid out in IAS 38, "Intangible Assets", trademarks and non-contractual customer relationships.
13. Cash and cash equivalents
For the purpose of presenting the consolidated cash flow statement, the consolidated cash and cash equivalents comprise the following:
£ Millions Six months ended Six months ended 30 June 2010 30 June 2009 (Unaudited) (Unaudited) Cash and bank balances 2.9 1.8 Less: Bank overdrafts - (4.7) Cash and cash equivalents per 2.9 (2.9)
consolidated cash flow statement Reconciliation to free cash flow: Net cash inflow from operating 5.2 5.8 activities Development expenses capitalised (0.9) (0.8)
Net interest expense (0.4) (0.7) Free cash flow 3.9 4.3
14. Borrowings, bank loans and overdraft
£ Millions 30 June 2010 31 December 2009 30 June 2009 (Unaudited) (Unaudited) Non-Current 18.1 18.8 20.3 Current 4.0 3.9 6.5 Total 22.1 22.7 26.8 15. 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 2010 2009 2010 2009 2009 Change Average Average Period end Period end Period end USD/GBP 1.54 1.46 5.5% 1.49 1.60 1.63 EUR/GBP 1.14 1.10 3.6% 1.22 1.11 1.17
Approximately 70% 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 2009 to the first half of 2010 are summarised
asfollows:£ Millions USD EUR Impact on revenues (1.6) (0.1) Impact on profit before tax (0.3) - Impact on net debt (1.7) -
16. Directors' responsibility statement
The interim financial statements were approved by the board of directors on 2 August 2010.
The directors confirm that to the best of their knowledge that:
* This unaudited condensed financial information has been prepared in accordance with IAS 34 "Interim Reporting" as adopted by the European Union; and * The interim management report 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 month 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 2009 Annual Report.
vendor